Related papers: An Optimal Pairs-Trading Rule
The focus of this paper is on identifying the most effective selling strategy for pairs trading of stocks. In pairs trading, a long position is held in one stock while a short position is held in another. The goal is to determine the…
This paper is concerned with an optimal strategy for simultaneously trading a pair of stocks. The idea of pairs trading is to monitor their price movements and compare their relative strength over time. A pairs trade is triggered by the…
This paper studies the problem of determining the optimal cut-off for pairs trading rules. We consider two correlated assets whose spread is modelled by a mean-reverting process with stochastic volatility, and the optimal pair trading rule…
A pair trade is a portfolio consisting of a long position in one asset and a short position in another, and it is a widely applied investment strategy in the financial industry. Recently, Ekstr\"om, Lindberg and Tysk studied the problem of…
Pair trading is a market-neutral quantitative trading strategy that exploits price anomalies between two correlated assets. By taking simultaneous long and short positions, it generates profits based on relative price movements, independent…
Pairs trading is a market-neutral strategy that exploits historical correlation between stocks to achieve statistical arbitrage. Existing pairs-trading algorithms in the literature require rather restrictive assumptions on the underlying…
This paper derives a robust on-line equity trading algorithm that achieves the greatest possible percentage of the final wealth of the best pairs rebalancing rule in hindsight. A pairs rebalancing rule chooses some pair of stocks in the…
Pairs-trading is a trading strategy that involves matching a long position with a short position in two stocks aiming at market-neutral profits. While a typical pairs-trading system monitors the prices of two statistically correlated stocks…
Pair trading is one of the most effective statistical arbitrage strategies which seeks a neutral profit by hedging a pair of selected assets. Existing methods generally decompose the task into two separate steps: pair selection and trading.…
Trailing stop is a popular stop-loss trading strategy by which the investor will sell the asset once its price experiences a pre-specified percentage drawdown. In this paper, we study the problem of timing buy and then sell an asset subject…
Motivated by the industry practice of pairs trading, we study the optimal timing strategies for trading a mean-reverting price spread. An optimal double stopping problem is formulated to analyze the timing to start and subsequently…
In this work, we study a dynamic portfolio optimization problem related to pairs trading, which is an investment strategy that matches a long position in one security with a short position in another security with similar characteristics.…
Pairs trading is a strategy based on exploiting mean reversion in prices of securities. It has been shown to generate significant excess returns, but its profitability has dropped significantly in recent periods. We employ the most common…
Optimal trading strategies for pairs trading have been studied by models that try to find either optimal shares of stocks by assuming no transaction costs or optimal timing of trading fixed numbers of shares of stocks with transaction…
Pairs Trading is carried out in the financial market to earn huge profits from known equilibrium relation between pairs of stock. In financial markets, seldom it is seen that stock pairs are correlated at particular lead or lag. This…
We consider the problem of the optimal trading strategy in the presence of linear costs, and with a strict cap on the allowed position in the market. Using Bellman's backward recursion method, we show that the optimal strategy is to switch…
We consider a two-way trading problem, where investors buy and sell a stock whose price moves within a certain range. Naturally they want to maximize their profit. Investors can perform up to $k$ trades, where each trade must involve the…
In this paper we consider a pairs trading financial market with the spread of risky assets defined by the Ornstein-Uhlenbeck (OU) process. We implement an optimal strategy for power utility functions for investment/consumption problem.…
We expose a simple solution of the consumption-investment problem pair trading. The proof is based on the remark that the HJB equation can be reduced to a linear parabolic equation solvable explicitly.
This paper studies the timing of trades under mean-reverting price dynamics subject to fixed transaction costs. We solve an optimal double stopping problem to determine the optimal times to enter and subsequently exit the market, when…