Thanks for the response, but I've already put together an indicator based on your idea. It looks just like a regular yield spread (10-Year yield minus 3-month yield), only with the zero line adjusted for the Fed Funds rate as per the Wright Model formula.
The problem is that at the 50% probability level (the zero line on the indicator) there are too many false-positive signals, it's not until the probability gets up into the mid-60% range that recession becomes a real threat. That's why I'd like to be able to calculate the actual probability percentages. In looking at the math more closely, though, I have to say that I honestly didn't understand how difficult a problem this was when I asked for assistance. I assumed that it was just a question of combining the two formulas I provided and I just needed a little conceptual help to get over the hump, but it's far more involved and I know now that it was too much to ask. There are two simpler workarounds, though. One, calculate the probabilities in Excel, import them into AB as a fake ticker and refer to them using Foreign() when creating buy/sell rules. And two, optimize the zero line or the levels on the indicator I already have. Luck, Sebastian --- In [email protected], "Ton Sieverding" <[EMAIL PROTECTED]> wrote: > > Sorry for the Dutch language Sebastian but this is more or less how I see it. Perhaps something for an AFL formula. On the Y-axis the difference between 10 Year Treasury and 3 month T-Bill. On the X-axis the FED rate. Plots above the blue line have a probability of less than 50% and below the blue line are higher than 50%. Of course you can try to calculate the probability of a recession but ... > > Ton. > > > > > ----- Original Message ----- > From: sebastiandanconia > To: [email protected] > Sent: Wednesday, February 07, 2007 7:20 PM > Subject: [amibroker] Need some math help to code NORMSDIST into AB. > > > > I came across what I consider to be a valuable stock market/economic indicator, the Wright Model "B" yield-curve indicator. Using this formula in Excel: > > Probability = NORMSDIST(-2.17 - 0.76 x S + 0.35 x R) > > where "S" is the spread (10-Year Treasury yield minus 3-month T-Bill yield) and "R" is the Fed Funds rate, it gives the probability of economic recession within the next 4 quarters. (Only about 44% right now, so there's some good news. I envision using this as a market-exit indicator, warning when conditions are about to turn really ugly for both the stock market and the economy. ) > > This formula: > > Z(x) = (1/(sqrt(2*pi()))*exp(-x^2/2)) > > appears to be the actual math represented by the NORMSDIST function. I believe AB supports all the operations in this formula. > > My problem is that I'm not math-savvy enough to make the leap from here to turn this into a complete AB formula. I don't know what operation the NORMSDIST formula performs on the Wright Model part, I don't know what the "x" variable is supposed to be...there's no end to what I don't know.:) > > Any help from my superiors in the math field (undoubtedly a VERY large club) would be greatly appreciated. > > > > Luck to all, > > Sebastian >
