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Investigation of multivariate pairs trading under copula approach with mixture distribution

Author

Listed:
  • He, Fuli
  • Yarahmadi, Ali
  • Soleymani, Fazlollah

Abstract

Pairs trading is typically implemented using two assets. The copula approach can allow us to consider the dependency among multiple assets and use multivariate pairs in this strategy. The goal of this article is to investigate this strategy under the copula approach for a group of assets that have mixture distributions. Increasing the consideration of multivariate pairs, especially in the trivariate case, enhances the amount of dependent information. In fact, the results show that multivariate pairs increase trading opportunities. Computational pieces of evidence are brought forward to support the proposed algorithm of this work.

Suggested Citation

  • He, Fuli & Yarahmadi, Ali & Soleymani, Fazlollah, 2024. "Investigation of multivariate pairs trading under copula approach with mixture distribution," Applied Mathematics and Computation, Elsevier, vol. 472(C).
    • Handle: RePEc:eee:apmaco:v:472:y:2024:i:c:s0096300324001073
    DOI: 10.1016/j.amc.2024.128635
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    References listed on IDEAS

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    More about this item

    Keywords

    Marginal distributions; Pairs trading strategy; Multivariate pairs; Copula; Mixture distribution;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General

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