Deriving the Mean Reverting Level Formula
i am using the Schweser notes to study for the CFA level 2 exam next June and am having a bit of trouble understanding how to derive equations algebraically by isolating variables in a ‘root’ equation.
For example the mean reverting formula is:
The root formula is:
Xt+1= b0 + b1Xt
where Xt+1 = Xt
Can someone explain the algebraic process to get from the root formula to the derived formula. Please explain as if you were communicating with a 2 year old.
Appreciate the help!