We derive the optimal hedging ratios for a portfolio of assets driven by a Cointegrated Vector Autoregressive model with general cointegration rank. Our hedge is optimal in the sense of minimum variance portfolio. We consider a model that allows for the hedges to be cointegrated with the hedged...

The role of cointegration is analysed for optimal hedging of an h-period portfolio. Prices are assumed to be generated by a cointegrated vector autoregressive model allowing for stationary martingale errors, satisfying a mixing condition and hence some heteroscedasticity. The risk of a portfolio...

In this paper we consider two cases of pairs trading strategies: a conditional statistical arbitrage method and an implicit statistical arbitrage method. We use a simulation-based Bayesian procedure for predicting stable ratios, defined in a cointegration model, of pairs of stock prices. We show...

A novel simulation-based methodology is proposed to test the validity of a set of marginal time series models, where the dependence structure between the time series is taken "directly" from the observed data. The procedure is useful when one wants to summarize the test results for several time...

Voting power methodology offers insights to understand coalition building in collective decision making. Using cooperative game theory, Banzhaf (1965) developed an index to capture the numerical importance of voters in coalition building. This voting power index is still widely used today in...