PAIRS TRADING VIDYAMURTHY PDF

A pairs trade is a trading strategy that involves matching a long position with a short position in two stocks with a high correlation. The concept uses statistical and technical analysis to seek out potential market-neutral profits. Market-Neutral Arbitrage Market-neutral strategies are a key aspect of pairs of trade transactions. Market-neutral strategies involve long and short positions in two different securities with a positive correlation. The two offsetting positions form the basis for a hedging strategy that seeks to benefit from either a positive or negative trend.

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Chapter 1. Market Neutral Strategy. Pairs Trading. Chapter 2. Time Series. Time Series Models. Goodness of Fit versus Bias. Model Choice. Modeling Stock Prices. Chapter 3. Factor Models. Arbitrage Pricing Theory. The Covariance Matrix.

Application: Calculating the Risk on a Portfolio. Application: Calculation of Portfolio Beta. Application: Tracking Basket Design. Sensitivity Analysis. Chapter 4. Kalman Filtering. The Kalman Filter. The Scalar Kalman Filter. Filtering the Random Walk. Chapter 5. Applying the Model. A Trading Strategy. Road Map for Strategy Design. Chapter 6. Pairs Selection in Equity Markets. Common Trends Cointegration Model. The Distance Measure. Interpreting the Distance Measure. Reconciling Theory and Practice.

Chapter 7. Testing for Tradability. The Linear Relationship. Testing Residual for Tradability. Chapter 8. Trading Design. Band Design for White Noise. Spread Dynamics. Nonparametric Approach. Tying Up Loose Ends. Chapter 9. Risk Arbitrage Mechanics. The Deal Process.

Transaction Terms. The Deal Spread. Trading Strategy. Quantitative Aspects. Chapter Trade Execution. Specifying the Order. Verifying the Execution.

Execution During the Pricing Period. Short Selling. The Market Implied Merger Probability. Implied Probabilities and Arrow-Debreu Theory. The Single-Step Model. The Multistep Model.

Risk Management. Spread Inversion. The Prediction Equation. The Observation Equation. Applying the Kalman Filter. Model Selection. Applications to Trading. Series Volume Number.

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Pairs Trading: Quantitative Methods and Analysis

Chapter 1. Market Neutral Strategy. Pairs Trading. Chapter 2. Time Series.

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Pairs Trading: Quantitative Methods and Analysis

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