Analytic solutions for optimal statistical arbitrage trading |
| |
Authors: | William K Bertram |
| |
Institution: | Investment Technology Group Inc., Sydney NSW 2000, Australia |
| |
Abstract: | In this paper we derive analytic formulae for statistical arbitrage trading where the security price follows an Ornstein-Uhlenbeck process. By framing the problem in terms of the first-passage time of the process, we derive expressions for the mean and variance of the trade length and the return. We examine the problem of choosing an optimal strategy under two different objective functions: the expected return, and the Sharpe ratio. An exact analytic solution is obtained for the case of maximising the expected return. |
| |
Keywords: | Econophysics Stochastic processes First-passage time |
本文献已被 ScienceDirect 等数据库收录! |