An Optimal Strategy for Pairs Trading Under Geometric Brownian Motions

doi:10.1007/s10957-017-1065-8

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	An Optimal Strategy for Pairs Trading Under Geometric Brownian Motions
	Tie, Jingzhi 1; Zhang, Hanqin2,3 ; Zhang, Qing 1
	2018-11-01
发表期刊	JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS
ISSN	0022-3239
卷号	179 期号:2 页码:654-675
摘要	This paper is concerned with an optimal strategy for simultaneously trading of a pair of stocks. The idea of pairs trading is to monitor their price movements and compare their relative strength over time. A pairs trade is triggered by their prices divergence and consists of a pair of positions to short the strong stock and to long the weak one. Such a strategy bets on the reversal of their price strengths. From the viewpoint of technical tractability, typical pairs-trading models usually assume a difference of the stock prices satisfies a mean-reversion equation. In this paper, we consider the optimal pairs-trading problem by allowing the stock prices to follow general geometric Brownian motions. The objective is to trade the pairs over time to maximize an overall return with a fixed commission cost for each transaction. The optimal policy is characterized by threshold curves obtained by solving the associated HJB equations. Numerical examples are included to demonstrate the dependence of our trading rules on various parameters and to illustrate how to implement the results in practice.
关键词	Pairs trading Optimal policy Quasi-variational inequalities 93E20 91G80 49L20
DOI	10.1007/s10957-017-1065-8
语种	英语
资助项目	Simons Foundation[235179]
WOS研究方向	Operations Research & Management Science ; Mathematics
WOS类目	Operations Research & Management Science ; Mathematics, Applied
WOS记录号	WOS:000447518900012
出版者	SPRINGER/PLENUM PUBLISHERS
引用统计
文献类型	期刊论文
条目标识符	http://ir.amss.ac.cn/handle/2S8OKBNM/31356
专题	应用数学研究所
通讯作者	Zhang, Qing
作者单位	1.Univ Georgia, Dept Math, Athens, GA 30602 USA 2.Acad Sinica, Acad Math & Syst Sci, Beijing 100190, Peoples R China 3.Natl Univ Singapore, Sch Business, Singapore 119245, Singapore
推荐引用方式 GB/T 7714	Tie, Jingzhi,Zhang, Hanqin,Zhang, Qing. An Optimal Strategy for Pairs Trading Under Geometric Brownian Motions[J]. JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS,2018,179(2):654-675.
APA	Tie, Jingzhi,Zhang, Hanqin,&Zhang, Qing.(2018).An Optimal Strategy for Pairs Trading Under Geometric Brownian Motions.JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS,179(2),654-675.
MLA	Tie, Jingzhi,et al."An Optimal Strategy for Pairs Trading Under Geometric Brownian Motions".JOURNAL OF OPTIMIZATION THEORY AND APPLICATIONS 179.2(2018):654-675.