What is Mean reversion in FRM Part 1?

A tendency for a variable to move back toward a long-run level after a shock. In an AR(1), mean reversion requires an absolute persistence coefficient below one.

Mean reversion

FRM Part 1 glossary · Quantitative Analysis

Definition

A tendency for a variable to move back toward a long-run level after a shock.

Mean reversion in plain English

In an AR(1), mean reversion requires an absolute persistence coefficient below one.

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Bootstrapping (term structure)

Related FRM Part 1 terms

Bayes' theorem
Bootstrapping (term structure)
Central limit theorem
Copula
Exponentially weighted moving average (EWMA)
Generalized Autoregressive Conditional Heteroskedasticity (GARCH)
Heteroskedasticity
Monte Carlo simulation
Ordinary least squares (OLS)
p-value

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