Stop-loss and leverage in optimal statistical arbitrage with an application to energy market

Roberto Baviera and Tommaso Santagostino Baldi

Energy Economics, 2019, vol. 79, issue C, 130-143

Abstract: In this paper, we develop a statistical arbitrage trading strategy with two key elements in hi-frequency trading: stop-loss and leverage. We consider, as in Bertram (2009), a mean-reverting process for the security price with proportional transaction costs; we show how to introduce stop-loss and leverage in an optimal trading strategy.

Keywords: Mean-reversion trading; Stop-loss; First-Exit-Time (search for similar items in EconPapers)
JEL-codes: G11 Q40 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:79:y:2019:i:c:p:130-143

DOI: 10.1016/j.eneco.2018.03.024

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