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      Statistical arbitrage in jump-diffusion models with compound poisson processes

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      Author(s)
      Akyildirim, E.
      Fabozzi, J.F.
      Goncu, A.
      Sensoy, Ahmet
      Date
      2021-02-26
      Source Title
      Annals of Operations Research
      Print ISSN
      02545330
      Publisher
      Springer Nature
      Volume
      313
      Issue
      2
      Pages
      1357 - 1371
      Language
      English
      Type
      Article
      Item Usage Stats
      17
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      3
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      Abstract
      We prove the existence of statistical arbitrage opportunities for jump-diffusion models of stock prices when the jump-size distribution is assumed to have finite moments. We show that to obtain statistical arbitrage, the risky asset holding must go to zero in time. Existence of statistical arbitrage is demonstrated via ‘buy-and-hold until barrier’ and ‘short until barrier’ strategies with both single and double barrier. In order to exploit statistical arbitrage opportunities, the investor needs to have a good approximation of the physical probability measure and the drift of the stochastic process for a given asset.
      Keywords
      Compound Poisson process
      Jump-diffusion model
      Monte Carlo simulation
      Statistical arbitrage
      Permalink
      http://hdl.handle.net/11693/111534
      Published Version (Please cite this version)
      https://dx.doi.org/10.1007/s10479-021-03965-w
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