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Medium · time_series · Quant Researcher interview question · mean-reversion, ornstein-uhlenbeck, time-series, ols, parameter-estimation
The Ornstein-Uhlenbeck (OU) process is a staple in quantitative finance for modeling mean-reverting time series like interest rates or pairs trading spreads. Estimating its parameters—speed of reversion (kappa), long-run mean (mu), and volatility (sigma)—is crucial for developing trading strategies. This problem uses an Ordinary Least Squares (OLS) regression on the discretized process, a fast and common alternative to maximum likelihood estimation. Task Implement the function solution(prices: