Detecting Statistical Arbitrage Opportunities Using a Combined Neural Network - GARCH Model
Nikos S. Thomaidis
University of the Aegean - Department of Financial Engineering & Management - Decision & Management Engineering Laboratory
NGSQ International, Ltd
January 12, 2012
This paper proposes a hybrid computational intelligent system for the detection of statistical arbitrage opportunities in pairs of assets. The proposed methodology combines nonlinear neural network autoregressive models with GARCH parametrizations of volatility for describing the dynamics of the correction of relative mispricings. First results from this approach seem encouraging; further experimentation on the optimal sampling frequency, the forecasting horizon and the points of entry and exit is conducted, in order to improve the economic value when transaction costs are taken into account.
Number of Pages in PDF File: 14working papers series
Date posted: January 15, 2012 ; Last revised: January 24, 2012
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