High-dimensional statistical arbitrage with factor models and stochastic control

DOI10.1080/1350486X.2019.1702067MaRDI QIDQ5207795zbMATH OpenOpenAlexFDO

Authors Jorge Guijarro-Ordóñez

Publication date 13 January 2020

Published in Applied Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1901.09309

zbMATH Keywords

factor modelsOrnstein-Uhlenbeck processstochastic controlmean reversionalgorithmic tradingstatistical arbitrage

Mathematics Subject Classification ID

Diffusion processes (60J60) Portfolio theory (91G10) Financial markets (91G15) Optimal stochastic control (93E20)

Abstract: The present paper provides a study of high-dimensional statistical arbitrage that combines factor models with the tools from stochastic control, obtaining closed-form optimal strategies which are both interpretable and computationally implementable in a high-dimensional setting. Our setup is based on a general statistically-constructed factor model with mean-reverting residuals, in which we show how to construct analytically market-neutral portfolios and we analyze the problem of investing optimally in continuous time and finite horizon under exponential and mean-variance utilities. We also extend our model to incorporate constraints on the investor's portfolio like dollar-neutrality and market frictions in the form of temporary quadratic transaction costs, provide extensive Monte Carlo simulations of the previous strategies with 100 assets, and describe further possible extensions of our work.

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Cites work

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Cited in

(10)

• Optimal dynamic futures portfolio under a multifactor Gaussian framework
• Statistical arbitrage in the US equities market
• Detecting data-driven robust statistical arbitrage strategies with deep neural networks
• Robust statistical arbitrage strategies
• Statistical arbitrage under a fractal price model
• Statistical arbitrage: factor investing approach
• Statistical arbitrage with optimal causal paths on high-frequency data of the S&P 500
• Statistical arbitrage in the Black-Scholes framework
• Cryptoasset factor models
• Risk control of mean-reversion time in statistical arbitrage

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