Abstract:The use of stochastic differential equations offers great advantages for statistical arbitrage pairs trading. In particular, it allows the selection of pairs with desirable properties, e.g., strong mean-reversion, and it renders traditional rules of thumb for trading unnecessary. This study provides an exhaustive survey dedicated to this field by systematically classifying the large body of literature and revealing potential gaps in research. From a total of more than 80 relevant references, five main strands … Show more
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