The Macro-Micro Model, Trends vs. Noise, and SSA - I
12 Pages Posted: 13 Jul 2016 Last revised: 22 Jul 2016
Date Written: July 11, 2016
The Macro Micro (MM) model contains different time scales and deals with risk as it occurs in the real world, especially trend risk. A new methodology - Singular Spectrum Analysis (SSA) – is introduced to identify historical trends, trend volatilities, and noise-reduced trend-trend correlations. Application is for a long-term PFE risk simulation, including realistic quasi-random Macro trends. Two Macro versions of the MM model are presented – a statistical trend model and a historic “time-slice” trend model.
Keywords: Macro, Micro, MM, time scales, real world, trend risk, Singular Spectrum Analysis, SSA, correlations, PFE, risk simulation, quasi-random, statistical trend model, historic “time-slice” trend
JEL Classification: C14, C63, E44, F65, G1
Suggested Citation: Suggested Citation