OPTIMAL PAIRS TRADING STRATEGY UNDER STATISTICAL VARIABILITY OF THE SPREAD PROCESS

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AZIZZADEH FATEMEH; EBADI NASRIN

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Journal Paper

Paper Information

Journal: FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT) Year:2018 | Volume:8 | Issue:33 Page(s): 229-246

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Information Journal Paper

Title

OPTIMAL PAIRS TRADING STRATEGY UNDER STATISTICAL VARIABILITY OF THE SPREAD PROCESS

Author(s)

AZIZZADEH FATEMEH | EBADI NASRIN | Issue Writer Certificate

Keywords

STATISTICAL ARBITRAGEQ1

MEAN REVERSION MODELQ1

STOCHASTIC VOLATILITYQ1

ORNSTEIN-UHLENBECK PROCESSQ1

PAIRS TRADINGQ1

Abstract

The appropriate investment and decision making about taking of correct long and short position needs proved strategies. In this research, PAIRS TRADING have been studied and a new non-parametric approach proposed based on Renko and Kagi construction which are two Japanese charting indicators. The proposed approach exploits information about the variability of spread process and a constant long-run mean dose not find for spread process but trade towards it like other methods of PAIRS TRADING and the only needed assumption is remaining constant of statistical properties of the spread process volatility.In this research, profitability of proposed method have been proved theoretically mean-reverting process with STOCHASTIC VOLATILITY, then PAIRS TRADING have been performed based on this approach on selective data of Tehran stock exchange. The results of implementation show that used strategy obtain 52.91% per return in stock pair of KHTRAC and KHTOGHA, 33.645 per return in stock pair of KHMOHAREKEH and KHODRO for appropriate selection of H.

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APA: Copy

AZIZZADEH, FATEMEH, & EBADI, NASRIN. (2018). OPTIMAL PAIRS TRADING STRATEGY UNDER STATISTICAL VARIABILITY OF THE SPREAD PROCESS. FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT), 8(33 ), 229-246. SID. https://sid.ir/paper/197790/en

Vancouver: Copy

AZIZZADEH FATEMEH, EBADI NASRIN. OPTIMAL PAIRS TRADING STRATEGY UNDER STATISTICAL VARIABILITY OF THE SPREAD PROCESS. FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT)[Internet]. 2018;8(33 ):229-246. Available from: https://sid.ir/paper/197790/en

IEEE: Copy

FATEMEH AZIZZADEH, and NASRIN EBADI, “OPTIMAL PAIRS TRADING STRATEGY UNDER STATISTICAL VARIABILITY OF THE SPREAD PROCESS,” FINANCIAL ENGINEERING AND SECURITIES MANAGEMENT (PORTFOLIO MANAGEMENT), vol. 8, no. 33 , pp. 229–246, 2018, [Online]. Available: https://sid.ir/paper/197790/en

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