Stochastic modeling and methods for portfolio management in cointegrated markets

Thesis

In this thesis we study the utility maximization problem for assets whose prices are cointegrated, which arises from the investment practice of convergence trading and its special forms, pairs trading and spread trading.

The major theme in the first two chapters of the thesis, is to investigate the assumption of market-neutrality of the optimal convergence trading strategies, which is a ubiquitous assumption taken by practitioners and academics alike. This assumption lacks a theoret...

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Authors: Angoshtari, B

• Publication date: 2014
• DOI: 10.5287/ora-rdkgkbz6v
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: Oxford University, UK
• Language: English
• Keywords: convergence trading; pairs trading; market neutrality; expected utility; cointegration; error correction model; well posedness; Riccati equation; proportional transaction costs; penalty method
• Subjects: Mathematical finance; Calculus of variations and optimal control; Econometrics; Probability theory and stochastic processes