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Algorithmic trading of co-integrated assets

Abstract:

We assume that the drift in the returns of asset prices consists of an idiosyncratic component and a common component given by a co-integration factor. We analyze the optimal investment strategy for an agent who maximizes expected utility of wealth by dynamically trading in these assets. The optimal solution is constructed explicitly in closed-form and is shown to be affine in the co-integration factor. We calibrate the model to three assets traded on the Nasdaq exchange (Google, Facebook, an...

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Publication status:
Published
Peer review status:
Peer reviewed

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Publisher copy:
10.1142/S0219024916500382

Authors


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Institution:
University of Oxford
Department:
Oxford, MPLS, Mathematical Institute
Role:
Author
Natural Sciences and Engineering Research Council of Canada More from this funder
Global Reporting Initiative More from this funder
Publisher:
World Scientific Publishing Publisher's website
Journal:
International Journal of Theoretical and Applied Finance Journal website
Volume:
19
Issue:
6
Pages:
1650038
Publication date:
2016-07-05
Acceptance date:
2016-05-23
DOI:
ISSN:
1793-6322
URN:
uuid:3d6fa076-3b21-4739-8316-8b7fa95317bd
Source identifiers:
624181
Local pid:
pubs:624181

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