Trading multiple mean reversion
Mathematical Finance
2020-09-22 v1
Abstract
How should one construct a portfolio from multiple mean-reverting assets? Should one add an asset to portfolio even if the asset has zero mean reversion? We consider a position management problem for an agent trading multiple mean-reverting assets. We solve an optimal control problem for an agent with power utility, and present a semi-explicit solution. The nearly explicit nature of the solution allows us to study the effects of parameter mis-specification, and derive a number of properties of the optimal solution.
Keywords
Cite
@article{arxiv.2009.09816,
title = {Trading multiple mean reversion},
author = {E. Boguslavskaya and M. Boguslavsky and D. Muravey},
journal= {arXiv preprint arXiv:2009.09816},
year = {2020}
}