Statistical Arbitrage and Optimal Trading with Transaction Costs in Futures Markets

Details Statistical Arbitrage and Optimal Trading with Transaction Costs in Futures Markets Statistical Arbitrage and Optimal Trading with Transaction Costs in Futures Markets

2008-01-22

arxiv.org/abs/0801.3348v1

Economy

Quantitative Finance

Trading and Market Microstructure

28 pages, submitted to journal

Scientific paper

We consider the Brownian market model and the problem of expected utility maximization of terminal wealth. We, specifically, examine the problem of maximizing the utility of terminal wealth under the presence of transaction costs of a fund/agent investing in futures markets. We offer some preliminary remarks about statistical arbitrage strategies and we set the framework for futures markets, and introduce concepts such as margin, gearing and slippage. The setting is of discrete time, and the price evolution of the futures prices is modelled as discrete random sequence involving Ito's sums. We assume the drift and the Brownian motion driving the return process are non-observable and the transaction costs are represented by the bid-ask spread. We provide explicit solution to the optimal portfolio process, and we offer an example using logarithmic utility.

Affiliated with

Also associated with

No associations

Rating

Statistical Arbitrage and Optimal Trading with Transaction Costs in Futures Markets does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Statistical Arbitrage and Optimal Trading with Transaction Costs in Futures Markets, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Statistical Arbitrage and Optimal Trading with Transaction Costs in Futures Markets will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-95341