IDEAS home Printed from https://ideas.repec.org/h/spr/sprchp/978-3-642-18412-3_9.html
   My bibliography  Save this book chapter

Optimal Liquidation of a Pairs Trade

In: Advanced Mathematical Methods for Finance

Author

Listed:
  • Erik Ekström

    (Uppsala University, Department of Mathematics)

  • Carl Lindberg

    (Chalmers University of Technology, Mathematical Sciences)

  • Johan Tysk

    (Uppsala University, Department of Mathematics)

Abstract

Pairs trading is a common strategy used by hedge funds. When the spread between two highly correlated assets is observed to deviate from historical observations, a long position is taken in the underpriced asset, and a short position in the overpriced one. If the spread narrows, both positions are closed, thus generating a profit. We study when to optimally liquidate a pairs trading strategy when the difference between the two assets is modeled by an Ornstein–Uhlenbeck process. We also provide a sensitivity analysis in the model parameters.

Suggested Citation

  • Erik Ekström & Carl Lindberg & Johan Tysk, 2011. "Optimal Liquidation of a Pairs Trade," Springer Books, in: Giulia Di Nunno & Bernt Øksendal (ed.), Advanced Mathematical Methods for Finance, chapter 0, pages 247-255, Springer.
    • Handle: RePEc:spr:sprchp:978-3-642-18412-3_9
    DOI: 10.1007/978-3-642-18412-3_9
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a
    for a similarly titled item that would be available.

    More about this item

    Keywords

    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:sprchp:978-3-642-18412-3_9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.