Related papers: Optimal Pairs Trading with Time-Varying Volatility
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.…
Pair trading is one of the most discussed topics among financial researches. Despite a growing base of work, portfolio management for multivariate time series is rarely discussed. On the other hand, most researches focus on refining…
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…
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…
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…
To improve the efficient frontier of the classical mean-variance model in continuous time, we propose a varying terminal time mean-variance model with a constraint on the mean value of the portfolio asset, which moves with the varying…
We consider stochastic volatility models using piecewise constant parameters. We suggest a hybrid optimization algorithm for fitting the models to a volatility surface and provide some numerical results. Finally, we provide an outlook on…
Accurate volatility forecasts are vital in modern finance for risk management, portfolio allocation, and strategic decision-making. However, existing methods face key limitations. Fully multivariate models, while comprehensive, are…
In this paper, we employ the Heston stochastic volatility model to describe the stock's volatility and apply the model to derive and analyze the optimal trading strategies for dealers in a security market. We also extend our study to option…
We introduce a simple stochastic volatility model, whose novelty consists in taking into account hitting times of the asset price, and study the optimal stopping problem corresponding to a put option whose time horizon (after the asset…
Pairs trading, a strategy that capitalizes on price movements of asset pairs driven by similar factors, has gained significant popularity among traders. Common practice involves selecting highly cointegrated pairs to form a portfolio, which…
Mounting empirical evidence suggests that the observed extreme prices within a trading period can provide valuable information about the volatility of the process within that period. In this paper we define a class of stochastic volatility…
This paper studies a continuous-time market {under stochastic environment} where an agent, having specified an investment horizon and a target terminal mean return, seeks to minimize the variance of the return with multiple stocks and a…
In this article, we provide a flexible framework for optimal trading in an asset listed on different venues. We take into account the dependencies between the imbalance and spread of the venues, and allow for partial execution of limit…
In this paper, a pricing formula for volatility swaps is delivered when the underlying asset follows the stochastic volatility model with jumps and stochastic intensity. By using Feynman-Kac theorem, a partial integral differential equation…
The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time…
Motivated by recent advances in the spectral theory of auto-covariance matrices, we are led to revisit a reformulation of Markowitz' mean-variance portfolio optimization approach in the time domain. In its simplest incarnation it applies to…
In this paper, we propose an equilibrium pricing model in a dynamic multi-period stochastic framework with uncertain income streams. In an incomplete market, there exist two traded risky assets (e.g. stock/commodity and weather derivative)…
This work is devoted to the study of modeling geophysical and financial time series. A class of volatility models with time-varying parameters is presented to forecast the volatility of time series in a stationary environment. The modeling…
This survey reviews portfolio choice in settings where investment opportunities are stochastic due to, e.g., stochastic volatility or return predictability. It is explained how to heuristically compute candidate optimal portfolios using…