MuEstimator.R

#' @title Estimator for the value of mu. Mu is the drift component in the 
#' Geometric Brownian Motion model.
#' 
#' @description Given a log price process, this function estimates the value of 
#' mu. Mu is the daily component of the returns which is attributable to upward, 
#' or downward, drift. This estimate can be annualized.
#' 
#' @param X vector :: A log price process.
#' @param annualize logical :: Annualize the parameter estimate.
#' @return mu.est double :: The estimated value of mu.
#' 
calibrateMu <- function(X, annualize = TRUE) {
  # Ensure the format of X is appropriate.
  X <- as.numeric(as.vector(X))
  
  # Estimate the value of mu.
  n <- length(X)
  mu.est <- (X[n] - X[1])/n
  
  if (!annualize) return(mu.est)
  else return(mu.est * 252)
}