Optimal Mean Reversion Trading
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Optimal Mean Reversion Trading
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Author : Tim Leung (Professor of industrial engineering)
language : en
Publisher: World Scientific
Release Date : 2015-11-26
Optimal Mean Reversion Trading written by Tim Leung (Professor of industrial engineering) and has been published by World Scientific this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-11-26 with Business & Economics categories.
"Optimal Mean Reversion Trading: Mathematical Analysis and Practical Applications provides a systematic study to the practical problem of optimal trading in the presence of mean-reverting price dynamics. It is self-contained and organized in its presentation, and provides rigorous mathematical analysis as well as computational methods for trading ETFs, options, futures on commodities or volatility indices, and credit risk derivatives. This book offers a unique financial engineering approach that combines novel analytical methodologies and applications to a wide array of real-world examples. It extracts the mathematical problems from various trading approaches and scenarios, but also addresses the practical aspects of trading problems, such as model estimation, risk premium, risk constraints, and transaction costs. The explanations in the book are detailed enough to capture the interest of the curious student or researcher, and complete enough to give the necessary background material for further exploration into the subject and related literature. This book will be a useful tool for anyone interested in financial engineering, particularly algorithmic trading and commodity trading, and would like to understand the mathematically optimal strategies in different market environments."--
Optimal Mean Reversion Trading Mathematical Analysis And Practical Applications
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Author : Tim Siu-tang Leung
language : en
Publisher: World Scientific
Release Date : 2015-11-26
Optimal Mean Reversion Trading Mathematical Analysis And Practical Applications written by Tim Siu-tang Leung and has been published by World Scientific this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-11-26 with Business & Economics categories.
Optimal Mean Reversion Trading: Mathematical Analysis and Practical Applications provides a systematic study to the practical problem of optimal trading in the presence of mean-reverting price dynamics. It is self-contained and organized in its presentation, and provides rigorous mathematical analysis as well as computational methods for trading ETFs, options, futures on commodities or volatility indices, and credit risk derivatives.This book offers a unique financial engineering approach that combines novel analytical methodologies and applications to a wide array of real-world examples. It extracts the mathematical problems from various trading approaches and scenarios, but also addresses the practical aspects of trading problems, such as model estimation, risk premium, risk constraints, and transaction costs. The explanations in the book are detailed enough to capture the interest of the curious student or researcher, and complete enough to give the necessary background material for further exploration into the subject and related literature.This book will be a useful tool for anyone interested in financial engineering, particularly algorithmic trading and commodity trading, and would like to understand the mathematically optimal strategies in different market environments.
Optimal Mean Reversion Trading
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Author : Tim Leung
language : en
Publisher:
Release Date : 2019
Optimal Mean Reversion Trading written by Tim Leung and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
This book provides a systematic study on the optimal timing of trades in markets with mean-reverting price dynamics. We present a financial engineering approach that distills the core mathematical questions from different trading problems, and also incorporates the practical aspects of trading, such as model estimation, risk premia, risk constraints, and transaction costs, into our analysis. Self-contained and organized, the book not only discusses the mathematical framework and analytical results for the financial problems, but also gives formulas and numerical tools for practical implementation. A wide array of real-world applications are discussed, such as pairs trading of exchange-traded funds, dynamic portfolio of futures on commodities or volatility indices, and liquidation of options or credit risk derivatives.A core element of our mathematical approach is the theory of optimal stopping. For a number of the trading problems discussed herein, the optimal strategies are represented by the solutions to the corresponding optimal single/multiple stopping problems. This also leads to the analytical and numerical studies of the associated variational inequalities or free boundary problems. We provide an overview of our methodology and chapter outlines in the Introduction.Our objective is to design the book so that it can be useful for doctoral and masters students, advanced undergraduates, and researchers in financial engineering/mathematics, especially those who specialize in algorithmic trading, or have interest in trading exchange-traded funds, commodities, volatility, and credit risk, and related derivatives. For practitioners, we provide formulas for instant strategy implementation, propose new trading strategies with mathematical justification, as well as quantitative enhancement for some existing heuristic trading strategies.
Optimal Mean Reversion Trading With Transaction Costs And Stop Loss Exit
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Author : Tim Leung
language : en
Publisher:
Release Date : 2015
Optimal Mean Reversion Trading With Transaction Costs And Stop Loss Exit written by Tim Leung and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
Motivated by the industry practice of pairs trading, we study the optimal timing strategies for trading a mean-reverting price spread. An optimal double stopping problem is formulated to analyze the timing to start and subsequently liquidate the position subject to transaction costs. Modeling the price spread by an Ornstein-Uhlenbeck process, we apply a probabilistic methodology and rigorously derive the optimal price intervals for market entry and exit. As an extension, we incorporate a stop-loss constraint to limit the maximum loss. We show that the entry region is characterized by a bounded price interval that lies strictly above the stop-loss level. As for the exit timing, a higher stop-loss level always implies a lower optimal take-profit level. Both analytical and numerical results are provided to illustrate the dependence of timing strategies on model parameters such as transaction cost and stop-loss level.
On The Profitability Of Optimal Mean Reversion Trading Strategies
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Author : Peng Huang
language : en
Publisher:
Release Date : 2016
On The Profitability Of Optimal Mean Reversion Trading Strategies written by Peng Huang and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016 with categories.
We study the profitability of optimal mean reversion trading strategies in the US equity market. Different from regular pair trading practice, we apply maximum likelihood method to construct the optimal static pairs trading portfolio that best fits the Ornstein-Uhlenbeck process, and rigorously estimate the parameters. Therefore, we ensure that our portfolios match the mean-reverting process before trading. We then generate contrarian trading signals using the model parameters. We also optimize the thresholds and the length of in-sample period by multiple tests. In nine good pair examples, we can see that our pairs exhibit high Sharpe ratio (above 1.9) over in-sample period and out-of-sample period. In particular, Crown Castle International Corp. (CCI) and HCP, Inc. (HCP) achieve a Sharpe ratio of 2.326 during in-sample test and a Sharpe ration of 2.425 in out-of-sample test. Crown Castle International Corp. CCI and (Realty Income Corporation) O achieve a Sharpe ratio of 2.405 and 2.903 separately during in-sample period and out-of-sample period.
Risk Management And Value
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Author : Mondher Bellalah
language : en
Publisher: World Scientific
Release Date : 2008
Risk Management And Value written by Mondher Bellalah and has been published by World Scientific this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Business & Economics categories.
This book provides a comprehensive discussion of the issues related to risk, volatility, value and risk management. It includes a selection of the best papers presented at the Fourth International Finance Conference 2007, qualified by Professor James Heckman, the 2000 Nobel Prize Laureate in Economics, as a high level one. The first half of the book examines ways to manage risk and compute value-at-risk for exchange risk associated to debt portfolios and portfolios of equity. It also covers the Basel II framework implementation and securitisation. The effects of volatility and risk on the valuation of financial assets are further studied in detail. The second half of the book is dedicated to the banking industry, banking competition on the credit market, banking risk and distress, market valuation, managerial risk taking, and value in the ICT activity. With its inclusion of new concepts and recent literature, academics and risk managers will want to read this book. Sample Chapter(s). Introduction (40 KB). Chapter 1: Managing Derivatives in the Presence of a Smile Effect and Incomplete Information (97 KB). Contents: Managing Derivatives in the Presence of a Smile Effect and Incomplete Information (M Bellalah); A Value-at-Risk Approach to Assess Exchange Risk Associated to a Public Debt Portfolio: The Case of a Small Developing Economy (W Ajili); A Method to Find Historical VaR for Portfolio that Follows S&P CNX Nifty Index by Estimating the Index Value (K V N M Ramesh); Some Considerations on the Relationship between Corruption and Economic Growth (V Dragota et al.); Financial Risk Management by Derivatives Caused from Weather Conditions: Its Applicability for Trkiye (T uzkan); The Basel II Framework Implementation and Securitization (M-F Lamy); Stochastic Time Change, Volatility, and Normality of Returns: A High-Frequency Data Analysis with a Sample of LSE Stocks (O Borsali & A Zenaidi); The Behavior of the Implied Volatility Surface: Evidence from Crude Oil Futures Options (A Bouden); Procyclical Behavior of Loan Loss Provisions and Banking Strategies: An Application to the European Banks (D D Dinamona); Market Power and Banking Competition on the Credit Market (I Lapteacru); Early Warning Detection of Banking Distress OCo Is Failure Possible for European Banks? (A Naouar); Portfolio Diversification and Market Share Analysis for Romanian Insurance Companies (M Dragota et al.); On the Closed-End Funds Discounts/Premiums in the Context of the Investor Sentiment Theory (A P C do Monte & M J da Rocha Armada); Why has Idiosyncratic Volatility Increased in Europe? (J-E Palard); Debt Valuation, Enterprise Assessment and Applications (D Vanoverberghe); Does The Tunisian Stock Market Overreact? (F Hammami & E Abaoub); Investor-Venture Capitalist Relationship: Asymmetric Information, Uncertainty, and Monitoring (M Cherif & S Sraieb); Threshold Mean Reversion in Stock Prices (F Jawadi); Households'' Expectations of Unemployment: New Evidence from French Microdata (S Ghabri); Corporate Governance and Managerial Risk Taking: Empirical Study in the Tunisian Context (A B Aroui & F W B M Douagi); Nonlinearity and Genetic Algorithms in the Decision-Making Process (N Hachicha & A Bouri); ICT and Performance of the Companies: The Case of the Tunisian Companies (J Ziadi); Option Market Microstructure (J-M Sahut); Does the Standardization of Business Processes Improve Management? The Case of Enterprise Resource Planning Systems (T Chtioui); Does Macroeconomic Transparency Help Governments be Solvent? Evidence from Recent Data (R Mallat & D K Nguyen). Readership: Academics and risk managers."
Algorithmic And High Frequency Trading
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Author : Álvaro Cartea
language : en
Publisher: Cambridge University Press
Release Date : 2015-08-06
Algorithmic And High Frequency Trading written by Álvaro Cartea and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015-08-06 with Business & Economics categories.
A straightforward guide to the mathematics of algorithmic trading that reflects cutting-edge research.
Pairs Trading
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Author : Ganapathy Vidyamurthy
language : en
Publisher: John Wiley & Sons
Release Date : 2011-02-02
Pairs Trading written by Ganapathy Vidyamurthy and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-02-02 with Business & Economics categories.
The first in-depth analysis of pairs trading Pairs trading is a market-neutral strategy in its most simple form. The strategy involves being long (or bullish) one asset and short (or bearish) another. If properly performed, the investor will gain if the market rises or falls. Pairs Trading reveals the secrets of this rigorous quantitative analysis program to provide individuals and investment houses with the tools they need to successfully implement and profit from this proven trading methodology. Pairs Trading contains specific and tested formulas for identifying and investing in pairs, and answers important questions such as what ratio should be used to construct the pairs properly. Ganapathy Vidyamurthy (Stamford, CT) is currently a quantitative software analyst and developer at a major New York City hedge fund.
Mean Reversion Trading With Sequential Deadlines And Transaction Costs
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Author : Yerkin Kitapbayev
language : en
Publisher:
Release Date : 2019
Mean Reversion Trading With Sequential Deadlines And Transaction Costs written by Yerkin Kitapbayev and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.
We study the optimal timing strategies for trading a mean-reverting price process with a finite deadline to enter and a separate finite deadline to exit the market. The price process is modeled by a diffusion with an affine drift that encapsulates a number of well-known models, including the Ornstein-Uhlenbeck (OU) model, Cox-Ingersoll-Ross (CIR) model, Jacobi model, and inhomogeneous geometric Brownian motion (IGBM) model. We analyze three types of trading strategies: (i) the long-short (long to open, short to close) strategy; (ii) the short-long (short to open, long to close) strategy, and (iii) the chooser strategy whereby the trader has the added flexibility to enter the market by taking either a long or short position, and subsequently close the position. For each strategy, we solve an optimal double stopping problem with sequential deadlines, and determine the optimal timing of trades. Our solution methodology utilizes the local time-space calculus of Peskir (2005) to derive nonlinear integral equations of Volterra-type that uniquely characterize the trading boundaries. Numerical implementation of the integral equations provides examples of the optimal trading boundaries.
A Machine Learning Based Pairs Trading Investment Strategy
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Author : Simão Moraes Sarmento
language : en
Publisher: Springer Nature
Release Date : 2020-07-13
A Machine Learning Based Pairs Trading Investment Strategy written by Simão Moraes Sarmento and has been published by Springer Nature this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-07-13 with Technology & Engineering categories.
This book investigates the application of promising machine learning techniques to address two problems: (i) how to find profitable pairs while constraining the search space and (ii) how to avoid long decline periods due to prolonged divergent pairs. It also proposes the integration of an unsupervised learning algorithm, OPTICS, to handle problem (i), and demonstrates that the suggested technique can outperform the common pairs search methods, achieving an average portfolio Sharpe ratio of 3.79, in comparison to 3.58 and 2.59 obtained using standard approaches. For problem (ii), the authors introduce a forecasting-based trading model capable of reducing the periods of portfolio decline by 75%. However, this comes at the expense of decreasing overall profitability. The authors also test the proposed strategy using an ARMA model, an LSTM and an LSTM encoder-decoder.