Pairs trading: a copula approach

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dc.contributor.advisorBosman, Petrusen_ZA
dc.contributor.authorAugustine, Ceciliaen_ZA
dc.date.accessioned2014-10-17T10:09:59Z
dc.date.available2014-10-17T10:09:59Z
dc.date.issued2014en_ZA
dc.descriptionIncludes bibliographical references.en_ZA
dc.description.abstractPairs trading is an arbitrage strategy that involves identifying a pair of stocks known to move together historically and trading on them when relative mispricing occurs. The strategy involves shorting the overvalued stock and simultaneously going long on the undervalued stock and closing the positions once the prices have returned to fair values. The cointegration method and the distance method are the most common techniques used in pairs trading strategy. However under these methods, the measure of divergence between the stocks or the spread is assumed to be symmetrically distributed about the mean zero. In addition, the spread is assumed to be a stationary time series (cointegration method) or mean-reverting (distance method). These assumptions are the main drawbacks of these methods and may lead to missed and/or inaccurate trading signals. The purpose of this dissertation is to explore an alternative approach to pairs trading by use of copulas. This dissertation aims to investigate if copulas can improve the profitability of pairs trading. To achieve this aim, results of pairs trading by use of copulas are compared against those of cointegration and distance methods.en_ZA
dc.identifier.apacitationAugustine, C. (2014). <i>Pairs trading: a copula approach</i>. (Thesis). University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science. Retrieved from http://hdl.handle.net/11427/8532en_ZA
dc.identifier.chicagocitationAugustine, Cecilia. <i>"Pairs trading: a copula approach."</i> Thesis., University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science, 2014. http://hdl.handle.net/11427/8532en_ZA
dc.identifier.citationAugustine, C. 2014. Pairs trading: a copula approach. University of Cape Town.en_ZA
dc.identifier.ris TY - Thesis / Dissertation AU - Augustine, Cecilia AB - Pairs trading is an arbitrage strategy that involves identifying a pair of stocks known to move together historically and trading on them when relative mispricing occurs. The strategy involves shorting the overvalued stock and simultaneously going long on the undervalued stock and closing the positions once the prices have returned to fair values. The cointegration method and the distance method are the most common techniques used in pairs trading strategy. However under these methods, the measure of divergence between the stocks or the spread is assumed to be symmetrically distributed about the mean zero. In addition, the spread is assumed to be a stationary time series (cointegration method) or mean-reverting (distance method). These assumptions are the main drawbacks of these methods and may lead to missed and/or inaccurate trading signals. The purpose of this dissertation is to explore an alternative approach to pairs trading by use of copulas. This dissertation aims to investigate if copulas can improve the profitability of pairs trading. To achieve this aim, results of pairs trading by use of copulas are compared against those of cointegration and distance methods. DA - 2014 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2014 T1 - Pairs trading: a copula approach TI - Pairs trading: a copula approach UR - http://hdl.handle.net/11427/8532 ER - en_ZA
dc.identifier.urihttp://hdl.handle.net/11427/8532
dc.identifier.vancouvercitationAugustine C. Pairs trading: a copula approach. [Thesis]. University of Cape Town ,Faculty of Commerce ,Division of Actuarial Science, 2014 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/8532en_ZA
dc.language.isoengen_ZA
dc.publisher.departmentDivision of Actuarial Scienceen_ZA
dc.publisher.facultyFaculty of Commerceen_ZA
dc.publisher.institutionUniversity of Cape Town
dc.subject.otherMathematical Financeen_ZA
dc.titlePairs trading: a copula approachen_ZA
dc.typeMaster Thesis
dc.type.qualificationlevelMasters
dc.type.qualificationnameMPhilen_ZA
uct.type.filetypeText
uct.type.filetypeImage
uct.type.publicationResearchen_ZA
uct.type.resourceThesisen_ZA
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