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Trading multiple mean reversion

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  • E. Boguslavskaya
  • M. Boguslavsky
  • D. Muravey

Abstract

How should one construct a portfolio from multiple mean-reverting assets? Should one add an asset to portfolio even if the asset has zero mean reversion? We consider a position management problem for an agent trading multiple mean-reverting assets. We solve an optimal control problem for an agent with power utility, and present a semi-explicit solution. The nearly explicit nature of the solution allows us to study the effects of parameter mis-specification, and derive a number of properties of the optimal solution.

Suggested Citation

  • E. Boguslavskaya & M. Boguslavsky & D. Muravey, 2020. "Trading multiple mean reversion," Papers 2009.09816, arXiv.org.
    • Handle: RePEc:arx:papers:2009.09816
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    References listed on IDEAS

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    7. Tim Leung & Xin Li, 2016. "Optimal Mean Reversion Trading:Mathematical Analysis and Practical Applications," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 9839, August.
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