by Alan Kirman, Gilles Teyssière
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Suggested foundations for financial time series and volatility models and surfaces. Specialist prerequisites vary by paper.
Check whether a relationship can be estimated consistently over time.
Read the fitted relationship and its residuals.
Follow diffusion-based models and their assumptions.
Separate conditional volatility from observed returns.
Study long-run relationships without confusing them with correlation.
Check the assumptions behind reported estimates.
Study a correlated stochastic-variance model.
Choose a reproducible strategy, specify the trading rule, and test what remains after costs and estimation uncertainty.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.