Dynamic Pairs Trading Using the Stochastic Control Approach

We propose a model for analyzing dynamic pairs trading strategies using the stochastic control approach. The model is explored in an optimal portfolio setting, where the portfolio consists of a bank account and two co-integrated stocks and the objective is to maximize for a fixed time horizon, the expected terminal utility of wealth. For the exponential utility function, we reduce the problem to a linear parabolic Partial Differential Equation which can be solved in closed form. In particular, we exhibit the optimal positions in the two stocks

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Year of publication:	2014
Authors:	Tourin, Agnes
Other Persons:	Yan, Raphael (contributor)
Publisher:	[2014]: [S.l.] : SSRN
Subject:	Stochastischer Prozess \| Stochastic process \| Kontrolltheorie \| Control theory \| Portfolio-Management \| Portfolio selection

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