Market-neutral trading with fuzzy inference, a new method for the pairs trading strategy

Name: Market-neutral trading with fuzzy inference, a new method for the pairs trading strategy
Author: Bayram, M., Akat, Muzaffer

İsim	Market-neutral trading with fuzzy inference, a new method for the pairs trading strategy
Yazar	Bayram, M., Akat, Muzaffer
Basım Tarihi:	2019
Basım Yeri	- Kaunas University of Technology
Konu	Market-neutral trading, Statistical arbitrage, Pairs trading, Fuzzy inference, Decision making
Tür	Süreli Yayın
Dil	İngilizce
Dijital	Evet
Yazma	Hayır
Kütüphane:	Özyeğin Üniversitesi
Demirbaş Numarası	1392-2785
Kayıt Numarası	20bd4172-c361-4683-9db0-668b9fc219a1
Lokasyon	International Finance
Tarih	2019
Örnek Metin	Pricing of financial instruments and stock market predictions is a specific and relatively narrow field, which has been mainly explored by mathematicians, economists and financial engineers. Prediction to make profits in a martingale domain is a hard task. Pairs trading, a market neutral arbitrage strategy, attempts to resolve the drawback of unpredictability and yield market independent returns using relative pricing idea. If two securities have similar characteristics, so should their prices. Deviation from the acceptable similarity range in price is considered an anomaly, and whenever noticed, trading is executed assuming the anomaly will correct itself. This work proposes a fuzzy inference model for the market-neutral pairs trading strategy. Fuzzy logic lets mimicking human decision-making in a complex trading environment and taking advantage of arbitrage opportunities that the crisp models may miss to acquire for trade decision-making. Spread between two co-integrated stocks and volatility of the spread are used as decision-making inputs. The main focus of this study is the contribution of the fuzzy engine to the existing pairs trading strategies based on the spread measure. Widespread classical 'crisp' techniques are chosen and compared with the developed fuzzy' model. Significant enhancement on the performance of the trading strategies has been reported.
DOI	10.5755/j01.ee.30.4.14350
Cilt	30

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Market-neutral trading with fuzzy inference, a new method for the pairs trading strategy

Yazar Bayram, M., Akat, Muzaffer

Basım Tarihi 2019

Basım Yeri - Kaunas University of Technology

Konu Market-neutral trading, Statistical arbitrage, Pairs trading, Fuzzy inference, Decision making

Tür Süreli Yayın

Dil İngilizce

Dijital Evet

Yazma Hayır

Kütüphane Özyeğin Üniversitesi

Demirbaş Numarası 1392-2785

Kayıt Numarası 20bd4172-c361-4683-9db0-668b9fc219a1

Lokasyon International Finance

Tarih 2019

Örnek Metin Pricing of financial instruments and stock market predictions is a specific and relatively narrow field, which has been mainly explored by mathematicians, economists and financial engineers. Prediction to make profits in a martingale domain is a hard task. Pairs trading, a market neutral arbitrage strategy, attempts to resolve the drawback of unpredictability and yield market independent returns using relative pricing idea. If two securities have similar characteristics, so should their prices. Deviation from the acceptable similarity range in price is considered an anomaly, and whenever noticed, trading is executed assuming the anomaly will correct itself. This work proposes a fuzzy inference model for the market-neutral pairs trading strategy. Fuzzy logic lets mimicking human decision-making in a complex trading environment and taking advantage of arbitrage opportunities that the crisp models may miss to acquire for trade decision-making. Spread between two co-integrated stocks and volatility of the spread are used as decision-making inputs. The main focus of this study is the contribution of the fuzzy engine to the existing pairs trading strategies based on the spread measure. Widespread classical 'crisp' techniques are chosen and compared with the developed fuzzy' model. Significant enhancement on the performance of the trading strategies has been reported.

DOI 10.5755/j01.ee.30.4.14350

Cilt 30