Module IV — Spread Construction

Status: outline. Lecture body not authored.

Price vs log-price, normalisation, hedge ratio, dollar/beta neutrality. OLS, scale dependence, rolling estimation, dynamic hedge ratios.

Spread_t = P_A,t − β P_B,t

Unique process — The spread is an engineered object

Hedge-ratio choice is part of the hypothesis, not a default of 1.