A fundamentally risky approach to arbitrage


Alsayed, Hamad and McGroarty, Frank (2012) A fundamentally risky approach to arbitrage. Management Science (Submitted).

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Description/Abstract

Studies of statistical arbitrage based on price convergence between related assets typically rely on Ornstein-Uhlenbeck (OU) dynamics. OU does not allow for the breakdown in the price parity relationship, a well-documented economic risk called "fundamental risk". We employ a nonlinear generalization of OU that accommodates this risk.

Item Type: Article
ISSNs: 0025-1909 (print)
1526-5501 (electronic)
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Divisions: Faculty of Business and Law > Southampton Management School > Finance
ePrint ID: 343125
Date Deposited: 24 Sep 2012 15:33
Last Modified: 27 Mar 2014 20:25
URI: http://eprints.soton.ac.uk/id/eprint/343125

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