<t>I am curious how you guys did it.Assume portfolio consists of 10 stocks. I have complete data on 8 (assume 500 day history) and incomplete data on 2 (say 200 and 300 day). First step is to calculate PCs for 200 point data set so have 10 PC parameters for each stock, then calculate PC parameters f...

We just switched from SPLUS to Matlab. Matlab is much more robust.

Thanks for your advice. I am always impressed by your depth.

<t>Thanks for both of your insight. I did find some spike in the pairs I tested. I agree that it might be caused by some events in one company, then it should be a drift change instead of volatility change in spread. How can you differentiate these two situation or you always assume one is constant?...

yes. I tried GARCH model, the predictability is so low that I gave up on it. Any suggestions on how to model it?

<t>First thanks for help. I benefited a lot from the forums.I am trying to analyze the spread between two stocks. Most time the volatility of the spread (from empirical study) is stable, sometimes it has a spike. Is that because the volatility changes or the drift changes? How can I differentiate th...

I am interested in the codes too! Thanks a lot!

Usually people always use return. The only time I heard people use price is when they use cointegration.

Does anyone know how to fit to a convex curve? If you there is come code in Matlab, that will be great.

Does anyone know how to fit the data to a convextity curve?