Related papers: Statistical arbitrage portfolio construction based…
We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…
This paper investigates the problem of ensembling multiple strategies for sequential portfolios to outperform individual strategies in terms of long-term wealth. Due to the uncertainty of strategies' performances in the future market, which…
We present an explicit hedging strategy, which enables to prove arbitrageness of market incorporating at least two assets depending on the same random factor. The implied Black-Scholes volatility, computed taking into account the form of…
In this work a relation between a measure of short-term arbitrage in the market and the excess growth of portfolios as a notion of long-term arbitrage is established. The former originates from "Geometric Arbitrage Theory" and the latter…
We study sequential multi-issue trading between two greedily rational agents who exchange resources from a finite set of categories. Each agent's utility depends on its allocation, but the offering agent does not know the responding agent's…
This paper investigates arbitrage properties of financial markets under distributional uncertainty using Wasserstein distance as the ambiguity measure. The weak and strong forms of the classical arbitrage conditions are considered. A…
Strategic asset allocation requires an investor to select stocks from a given basket of assets. The perspective of our investor is to maximize risk-adjusted alpha returns relative to a benchmark index. Historical returns are used to provide…
This paper is concerned with a pairs trading rule. The idea is to monitor two historically correlated securities. When divergence is underway, i.e., one stock moves up while the other moves down, a pairs trade is entered which consists of a…
This work proposes a unified framework for portfolio allocation, covering both asset selection and optimization, based on a multiple-hypothesis predict-then-optimize approach. The portfolio is modeled as a structured ensemble, where each…
Generalized statistical arbitrage concepts are introduced corresponding to trading strategies which yield positive gains on average in a class of scenarios rather than almost surely. The relevant scenarios or market states are specified via…
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…
We develop a robust framework for pricing and hedging of derivative securities in discrete-time financial markets. We consider markets with both dynamically and statically traded assets and make minimal measurability assumptions. We obtain…
We study a systematic approach to a popular Statistical Arbitrage technique: Pairs Trading. Instead of relying on two highly correlated assets, we replace the second asset with a replication of the first using risk factor representations.…
We propose a prediction model based on the minority game in which traders continuously evaluate a complete set of trading strategies with different memory lengths using the strategies' past performance. Based on the chosen trading strategy…
In this paper we develop a statistical arbitrage trading strategy with two key elements in hi-frequency trading: stop-loss and leverage. We consider, as in Bertram (2009), a mean-reverting process for the security price with proportional…
Machine learning is central to empirical asset pricing, but portfolio construction still relies on point predictions and largely ignores asset-specific estimation uncertainty. We propose a simple change: sort assets using…
The main contribution of the paper is to employ the financial market network as a useful tool to improve the portfolio selection process, where nodes indicate securities and edges capture the dependence structure of the system. Three…
We develop a behavioral asset pricing model in which agents trade in a market with information friction. Profit-maximizing agents switch between trading strategies in response to dynamic market conditions. Due to noisy private information…
Eliciting preferences from human judgements is inherently imprecise, yet most decision analysis methods force a single priority vector from pairwise comparisons, discarding the information embedded in inconsistencies. We instead leverage…
We consider the estimation of binary election outcomes as martingales and propose an arbitrage pricing when one continuously updates estimates. We argue that the estimator needs to be priced as a binary option as the arbitrage valuation…