Publication: Statistical Arbitrage with Pairs Trading
Statistical Arbitrage with Pairs Trading
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Göncü, A., & Akyildirim, E. (2016). Statistical Arbitrage with Pairs Trading. International Review of Finance, 16(2), 307–319. https://doi.org/10.1111/irfi.12074
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We analyze statistical arbitrage with pairs trading assuming that the spread of two assets follows a mean‐reverting Ornstein–Uhlenbeck process around a long‐term equilibrium level. Within this framework, we prove the existence of statistical arbitrage and derive optimality conditions for trading the spread portfolio. In the existence of uncertainty in the long‐term mean and the volatility of the spread, statistical arbitrage is no longer guaranteed. However, the asymptotic probability of loss can be bounded as a function of the standa
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- Göncü, Ahmet
- Akyildirim, Erdinc
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Göncü, A., & Akyildirim, E. (2016). Statistical Arbitrage with Pairs Trading. International Review of Finance, 16(2), 307–319. https://doi.org/10.1111/irfi.12074