2018/03/08 by Ziping Zhao, Rui Zhou, Zhao, Ziping +5
Decision Sciences · Economics, Econometrics and Finance · #FOS: Economics and business #Financial Markets and Investment Strategies #Portfolio Management (q-fin.PM) #Risk and Portfolio Optimization #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1803.02974
openalex publication_date 2018/03/08 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this paper, the optimal mean-reverting portfolio (MRP) design problem is considered, which plays an important role for the statistical arbitrage (a.k.a. pairs trading) strategy in financial markets. The target of the optimal MRP design is to construct a portfolio from the underlying assets that can exhibit a satisfactory mean reversion property and a desirable variance property. A general problem formulation is proposed by considering these two targets and an investment leverage constraint. To solve this problem, a successive convex approximation method is used. The performance of the proposed model and algorithms are verified by numerical simulations.