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In finance, statistical arbitrage (often abbreviated as Stat Arb or StatArb) is a class of short-term financial trading strategies that employ mean reversion models involving broadly diversified portfolios of securities (hundreds to thousands) held for short periods of time (generally seconds to days). These strategies are supported by ...
In finance, volatility arbitrage (or vol arb) is a term for financial arbitrage techniques directly dependent and based on volatility. A common type of vol arb is type of statistical arbitrage that is implemented by trading a delta neutral portfolio of an option and its underlying .
The firm engages in statistical arbitrage by going through data to find trading signals and patterns related to securities. A machine learning approach is used where computers are trained to operate independently with no human supervision to write algorithms that make predictions for trades.
The common types of high-frequency trading include several types of market-making, event arbitrage, statistical arbitrage, and latency arbitrage. Most high-frequency trading strategies are not fraudulent, but instead exploit minute deviations from market equilibrium.
This strategy is categorized as a statistical arbitrage and convergence trading strategy. [1] Pair trading was pioneered by Gerry Bamberger and later led by Nunzio Tartaglia's quantitative group at Morgan Stanley in the 1980s. [2] The strategy monitors performance of two historically correlated securities.
Thorp wrote many articles about option pricing, Kelly criterion, statistical arbitrage strategies (6-parts series), [18] and inefficient markets. [19] In 1991, Thorp was an early skeptic of Bernie Madoff's supposedly stellar investing returns which were proved to be fraudulent in 2008. [20]
Algorithmic trading is a method of executing orders using automated pre-programmed trading instructions accounting for variables such as time, price, and volume. [1] This type of trading attempts to leverage the speed and computational resources of computers relative to human traders.
Index arbitrage is a subset of statistical arbitrage focusing on index components.. An index (such as S&P 500) is made up of several components (in the case of the S&P 500, 500 large US stocks picked by S&P to represent the US market), and the value of the index is typically computed as a linear function of the component prices, where the details of the computation (such as the weights of the ...