Skip to content

Instantly share code, notes, and snippets.

What would you like to do?
#' @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)
Sign up for free to join this conversation on GitHub. Already have an account? Sign in to comment