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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 .
Convergence trade is a trading strategy consisting of two positions: buying one asset forward—i.e., for delivery in future (going long the asset)—and selling a similar asset forward (going short the asset) for a higher price, in the expectation that by the time the assets must be delivered, the prices will have become closer to equal (will have converged), and thus one profits by the ...
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 ...
Proprietary traders may use a variety of strategies such as index arbitrage, statistical arbitrage, merger arbitrage, fundamental analysis, volatility arbitrage, or global macro trading, much like a hedge fund. [2]
Arbitrage in terms of investment strategy, involves buying securities on one market for immediate resale on another market in order to profit from a price discrepancy. [ 1 ] Fixed-income securities are debt instruments issued by a government, corporation, or other entity to finance and expand their operations. [ 2 ]
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.
Since all of the major futures exchanges list both LIBOR (or the respective national equivalent) based contracts and government bond contracts, a fund such as The FI-RV Investor can take advantage of opportunities in this area of relative value as well. Frequently, as the credit concerns of either banks, governments or corporations comes into ...