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To: Moominoid who wrote (84170)	12/8/1998 9:26:00 PM
From: BGR	Read Replies (2) \| Respond to of 176387

David, I am confused. I thought that we were talking about the forecast interval for the equity price itself, not that of the moving average. I readily concede that the forecast interval for the moving average is narrower than that of the original variable itself. But how does that benefit in trading, unless you are trading Asian options (which are priced lower to reflect this narrower forecast interval)? As for P-M being a mean-reverting process over the very short term, given that the standard deviation of a variable following geometric Brownian motion is rather small over short intervals your observation may be true. But the very assumption that the observation period is very short negates the advantages that a mean-reverting process provides where one can wait for the process to revert back to the mean in the long run. As an example let's consider the classic example of the mean-reverting tradeable element with a stochastic component, short-term interest rates, fluctuations of which are completely unpredictable in the very short run. -Apratim.