http://repository.vnu.edu.vn/handle/VNU_123/26862
This paper studies the problem of determining the optimal cut-off for pairs trading rules.
We consider two cointegrated assets whose spread is modelled by a general mean-reverting process, and the optimal pair trading rule is formulated as an optimal switching problem between three regimes: flat position (no holding stocks), long one short the other and short one long the other.
A fixed commission cost is charged with each transaction.
We use a viscosity solutions approach to prove the existence and the explicit characterization of cut-off points via the resolution of quasi-algebraic equations.
We illustrate our results by numerical simulations.
This paper studies the problem of determining the optimal cut-off for pairs trading rules.
We consider two cointegrated assets whose spread is modelled by a general mean-reverting process, and the optimal pair trading rule is formulated as an optimal switching problem between three regimes: flat position (no holding stocks), long one short the other and short one long the other.
A fixed commission cost is charged with each transaction.
We use a viscosity solutions approach to prove the existence and the explicit characterization of cut-off points via the resolution of quasi-algebraic equations.
We illustrate our results by numerical simulations.
| Title: | Optimal switching for the pairs trading rule: A viscosity solutions approach |
| Authors: | Ngo, Minh-Man Pham, Huyen |
| Keywords: | Pairs trading Viscosity solutions. Mean-reverting process Optimal switching |
| Issue Date: | 2016 |
| Publisher: | H. : ĐHQGHN |
| Citation: | ISIKNOWLEDGE |
| Abstract: | This paper studies the problem of determining the optimal cut-off for pairs trading rules. We consider two cointegrated assets whose spread is modelled by a general mean-reverting process, and the optimal pair trading rule is formulated as an optimal switching problem between three regimes: flat position (no holding stocks), long one short the other and short one long the other. A fixed commission cost is charged with each transaction. We use a viscosity solutions approach to prove the existence and the explicit characterization of cut-off points via the resolution of quasi-algebraic equations. We illustrate our results by numerical simulations. |
| Description: | JOURNAL OF MATHEMATICAL ANALYSIS AND APPLICATIONS Volume: 441 Issue: 1 Pages: 403-425 ; TNS06393 |
| URI: | http://repository.vnu.edu.vn/handle/VNU_123/26862 |
| Appears in Collections: | Bài báo của ĐHQGHN trong Web of Science |
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