What is it about?
This paper uses the dynamic programming to detect the optimal statistical arbitrage opportunities in a market including a bond and a stock. First, it is assumed that the growth rates of stock are independent random variables and Bellman equation is derived for probability of gain of a portfolio containing a long position in stock and short position in bond. The Bellman equation is derived and its approximations are studied. Then, using the simulation, the performance of method in correlated growth rates cases is proposed. Conclusions are also given.
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Why is it important?
Bellman equation; bond; dynamic programming; the probability of statistical arbitrage; stock.
Perspectives
Hamed Habibi has been a Ph.D. student at Curtin University, Perth, Australia from 2015. He received his B.Sc. and M.Sc. degrees in Mechanical Engineering from Khaje Nasir University and University of Tehran, both in Tehran, Iran, in 2010 and 2013, respectively. His current research interests include wind turbine control systems, fault detection, isolation, identification, accommodation, and fault tolerant control systems with applications on wind turbines.
mr Hamed Habibi
Curtin University
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This page is a summary of: Statistical Arbitrage Opportunities Using Bellman Equation, British Journal of Mathematics & Computer Science, January 2016, Sciencedomain International,
DOI: 10.9734/bjmcs/2016/25967.
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