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Statistical arbitrage in jump-diffusion models with compound Poisson processes

Akyildirim, Erdinc; Fabozzi, Frank J; Göncü, Ahmet; Sensoy, Ahmet (2022). Statistical arbitrage in jump-diffusion models with compound Poisson processes. Annals of Operations Research, 313:1357-1371.

Abstract

We prove the existence of statistical arbitrage opportunities for jump-diffusion models of stock prices when the jump-size distribution is assumed to have finite moments. We show that to obtain statistical arbitrage, the risky asset holding must go to zero in time. Existence of statistical arbitrage is demonstrated via ‘buy-and-hold until barrier’ and ‘short until barrier’ strategies with both single and double barrier. In order to exploit statistical arbitrage opportunities, the investor needs to have a good approximation of the physical probability measure and the drift of the stochastic process for a given asset.

Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > General Decision Sciences
Social Sciences & Humanities > Management Science and Operations Research
Scope:Discipline-based scholarship (basic research)
Language:English
Date:June 2022
Deposited On:28 Jun 2022 07:19
Last Modified:27 Oct 2024 02:41
Publisher:Springer
ISSN:0254-5330
OA Status:Closed
Publisher DOI:https://doi.org/10.1007/s10479-021-03965-w
Official URL:https://link.springer.com/article/10.1007/s10479-021-03965-w
Other Identification Number:merlin-id:20839
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