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Register a new userStatistical Arbitrage and Optimal Trading with Transaction Costs in Futures Markets
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Added by
Theodoros Tsagaris
Publication date
2008
fields
Financial
and research's language is
English
Authors
Theodoros Tsagaris
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We consider the Brownian market model and the problem of expected utility maximization of terminal wealth. We, specifically, examine the problem of maximizing the utility of terminal wealth under the presence of transaction costs of a fund/agent investing in futures markets. We offer some preliminary remarks about statistical arbitrage strategies and we set the framework for futures markets, and introduce concepts such as margin, gearing and slippage. The setting is of discrete time, and the price evolution of the futures prices is modelled as discrete random sequence involving Itos sums. We assume the drift and the Brownian motion driving the return process are non-observable and the transaction costs are represented by the bid-ask spread. We provide explicit solution to the optimal portfolio process, and we offer an example using logarithmic utility.
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