Implementation of Pairs Trading Strategies

39 Pages Posted: 25 Apr 2010 Last revised: 12 Jan 2012

Oyvind Foshaug

University of Amsterdam

Date Written: April 22, 2010

Abstract

In this paper we outline two previously suggested methods for quantitative motivated trading in pairs. We focus on the method of cointegration and an unobserved mean reversion model called the stochastic spread model. The methods are used to implement a search procedure that aims to reveal profitable pairs among all possible pairs available on the German, French and Dutch stock exchanges. The intended user of this application is the trading desk at Amsterdams Effektenkantoor for which this investigation has been done. Implementation details are found at http://files.meetup.com/1704326/PairsTrading.ppt.

Keywords: pairs trading, mean reversion, implementation, kalman filter, VAR

Suggested Citation

Foshaug, Oyvind, Implementation of Pairs Trading Strategies (April 22, 2010). Available at SSRN: https://ssrn.com/abstract=1594066 or http://dx.doi.org/10.2139/ssrn.1594066

Oyvind Foshaug (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Paper statistics

Downloads
1,899
Rank
5,919
Abstract Views
4,961