Abstract
This survey paper is concerned with pairs trading strategies under geometric Brownian motion models. Pairs trading is about trading simultaneously a pair of securities, typically stocks. The idea is to monitor the spread of their price movements over time. A pairs trade is triggered by their price divergence (e.g., one stock moves up a significant amount relative to the other) and consists of a short position in the strong stock and a long position in the weak one. Such a strategy bets on the reversal of their price strengths and the eventual convergence of the price spread. Pairs trading is popular among trading institutions because its risk neutral nature. In practice, the trader needs to decide when to initiate a pairs position (how much divergence is enough) and when to close the position (how to take profits or cut losses). It is the main goals of this paper to address these issues and theoretical findings along with related practical considerations.
Access provided by Autonomous University of Puebla. Download to read the full chapter text
Chapter PDF
Similar content being viewed by others
Change history
21 June 2022
The original version of the book was inadvertently published with incorrect abstracts in the chapters. This has now been amended.
In addition to this, the affiliation of author Dr. Bertram Tschiderer has been changed to Faculty of Mathematics, University of Vienna in the online version of Chapter 10.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2022 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Luu, P., Tie, J., Zhang, Q. (2022). Pairs Trading under Geometric Brownian Motion Models. In: Yin, G., Zariphopoulou, T. (eds) Stochastic Analysis, Filtering, and Stochastic Optimization. Springer, Cham. https://doi.org/10.1007/978-3-030-98519-6_15
Download citation
DOI: https://doi.org/10.1007/978-3-030-98519-6_15
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-030-98518-9
Online ISBN: 978-3-030-98519-6
eBook Packages: Mathematics and StatisticsMathematics and Statistics (R0)