Optimal threshold of pairs trading

doi:10.3969/j.issn.0253-2778.2020.06.010

Abstract

Abstract: Considering the volatility and uncertainty of the market, how to effectively control the risk on the basis of maintaining stable return is an urgent problem to be solved. Here genetic algorithm was used to solve the optimal threshold of pairs trading with stop loss condition. Empirical test was carried out in the matching stocks of CSI 300 and CSI 500 Indices industries under the condition of cointegration and partial cointegration. Results show that the presented method controls risk and loss more effectively on high return than 10% stop loss and no stop loss.

Key words: stop loss, genetic algorithm, pairs trading, optimal threshold, partial cointegration

CLC Number:

C812

YU Xiaoyu, BI Xiuchun, ZHANG Shuguang. Optimal threshold of pairs trading[J]. Journal of University of Science and Technology of China, 2020, 50(6): 784-792.

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