Optimal Convergence Trade Strategies

• 成果类型: Article
• 署名作者: Liu, Jun; Timmermann, Allan
• 署名单位: University of California System; University of California San Diego
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhs130
• 发表日期: 2013
• 页码: 1048
• 关键词: arbitrage; RISK

摘要

Convergence trades exploit temporary mispricing by simultaneously buying relatively underpriced assets and selling short relatively overpriced assets. This paper studies optimal convergence trades under both recurring and nonrecurring arbitrage opportunities represented by continuing and stopped cointegrated price processes and considers both fixed and stochastic (Poisson) horizons. Conventional long-short delta neutral strategies are generally suboptimal and it can be optimal to simultaneously go long (or short) in two mispriced assets. Optimal portfolio holdings critically depend on whether the risky asset position is liquidated when prices converge. Our theoretical results are illustrated on pairs of Chinese bank shares traded on both the Hong Kong and China stock exchanges.