Detecting Mean Reverted Patterns in Statistical Arbitrage
نویسنده
چکیده
Outline Motivation / algorithmic pairs trading Model setup Detection of local mean-reversion Adaptive estimation 1. RLS with gradient variable forgetting factor 2. RLS with Gauss-Newton variable forgetting factor 3. RLS with beta-Bernoulli forgetting factor Trading strategy Pepsi and Coca Cola example Introduction Statistical arbitrage. Algorithmic pairs trading market neutral trading. Buy low, sell high. Two assets with prices p At and p Bt At t: if p At < p Bt , buy low (A) and sell high (B). At t + 1: if p At > p Bt , buy low (B) and sell high (A)... In the long run, mean reversion of spread y t = p At − p Bt. If y t goes up, y t will go down at t + 1. Take advantage of relative mispricings of A and B.
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