Abstract
Pairs Trading Utilizing High-Frequency Information
by
Petra Tomanova
Pairs trading is a trading strategy exploiting financial markets that are out of equilibrium. When some pairs of securities exhibit strong similarity in the long run and they are currently far enough from the equilibrium, traders might profit by taking a long position in one and a short position in the other security from the pair. When it reverts back to the mean level, the positions are closed. Since the prices tend to return to their mutual equilibrium, the price differences of the pair can be modeled as the Ornstein-Uhlenbeck process. When information from the high-frequency data is utilized, we might obtain more accurate estimates, but on the other hand, we encounter the problem of so called microstructure noise. In this paper, we utilize data sampled at high-frequencies and apply noise-robust estimators to study spread between West Texas Intermediate crude oil prices and Brent crude oil prices in the first half of the year 2017.
Committee
Workshop
Key Dates
Communication
First Conference Link
Second Conference Link