B-TIER demo
Ornstein-Uhlenbeck mean-reversion visualized — theta/mu/sigma
100k ft — What is this?
Ornstein-Uhlenbeck mean-reversion visualized — theta/mu/sigma
50k ft — Why care?
@quant.traderr visualization of the OU process for mean reversion (vol, rates, pairs-trade spreads) with a probability cloud and live path. DM-gated Python repo for tuning theta/mu/sigma.
10k ft — Key takeaways
(no takeaways yet)
5k ft — Tools & techniques
(no tools tagged)
Ornstein-Uhlenbeck process, algorithmic trading, mean reversion, pairs trading
1k ft — Deep-dive / try it
The mathematical backbone of Mean Reversion strategies. 📉📈
Visualizing the Ornstein-Uhlenbeck (OU) process. Unlike standard Brownian motion (which models stock prices), the OU process models things that oscillate around a stable value—like volatility, interest rates, or the spread between two correlated assets in Pairs Trading.
If you want to play with the θ and σ parameters yourself, just comment 'ORNSTEIN' and I'll send you the repository. 🐍🔥
The "Probability Cloud" (green) shows where the path could have gone, but notice how the realized path (white) is constantly fighting to return to the theoretical mean (blue).
The equation at the bottom controls the battle:
θ = How fast it reverts.
μ = The long-term average.
σ = The volatility.
quant.dhawan
22w
If you want to play with th…
Transcript excerpt
Hip-hop music
More from @quant.dhawan
- B-TIER Heston Model — stochastic volatility for realistic options pricing
- B-TIER Cox Process — doubly stochastic Poisson for bursty market events
- A-TIER Hidden Markov Models — detecting market regime shifts automatically
- B-TIER Avellaneda-Stoikov — optimal spread calculation for market makers
- A-TIER Ornstein-Uhlenbeck Process — mean reversion for pairs trading