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Pair trading in Bovespa with a quantitative approach: cointegration, Ornstein-Uhlenbeck equation and Kelly criterion.

Submitted by ARIEL TEIXEIRA (ateixeira@fgvmail.br) on 2014-03-14T15:38:35Z
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Pair trading in Bovespa with a quantitative approach cointegration, Ornstein-Uhlenbeck equation and Kelly criterion.pdf: 857529 bytes, checksum: d324d9458357fb950c816b5a8bfd11d2 (MD5)
Previous issue date: 2014-02-17 / Pair trading is an old and well-known technique among traders. In this paper, we discuss an important element not commonly debated in Brazil: the cointegration between pairs, which would guarantee the spread stability. We run the Dickey-Fuller test to check cointegration, and then compare the results with non-cointegrated pairs. We found that the Sharpe ratio of cointegrated pairs is greater than the non-cointegrated. We also use the Ornstein-Uhlenbeck equation in order to calculate the half-life of the pairs. Again, this improves their performance. Last, we use the leverage suggested by Kelly Formula, once again improving the results.

Identiferoai:union.ndltd.org:IBICT/oai:bibliotecadigital.fgv.br:10438/11605
Date17 February 2014
CreatorsTeixeira, Ariel Amadeu Edwards
ContributorsGonçalves, Edson Daniel Lopes, Camargo, Sabrina, Azevedo, Rafael Moura, Escolas::EMAp, Silva, Moacyr Alvim Horta Barbosa da
Source SetsIBICT Brazilian ETDs
LanguageEnglish
Detected LanguageEnglish
Typeinfo:eu-repo/semantics/publishedVersion, info:eu-repo/semantics/masterThesis
Sourcereponame:Repositório Institucional do FGV, instname:Fundação Getulio Vargas, instacron:FGV
Rightsinfo:eu-repo/semantics/openAccess

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