Application of continuous - time random walk to statistical arbitrage

Sergey Osmekhin, De p artmen t of F inance and S t a t is t i c s, Hanken School of Economics, P.O. Box 479, FI - 00101, Helsinki, Finland, Fr ́ed ́eric D ́el`eze, De p artmen t of F inance and S t a t is t i c s, Hanken School of Economics, P.O. Box 479, FI - 00101, Helsinki, Finland
2015 Journal of Engineering Science and Technology Review  
An analytical statistical arbitrage strategy is proposed, where the distribution of the spread is modelled as a continuous-time random walk. Optimal boundaries, computed as a function of the mean and variance of the firstpassage time of the spread, maximises an objective function. The predictability of the trading strategy is analysed and contrasted for two forms of continuous-time random walk processes. We found that the waiting-time distribution has a significant impact on the prediction of
more » ... the prediction of the expected profit for intraday trading
doi:10.25103/jestr.81.16 fatcat:kchl5ma5uzamzampchtluiqxii