Optimal investment and consumption for pairs trading financial markets on small time interval

Sahar Albosaily; Serge Pergamenshchikov

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arXiv · 1712.04333

Optimal investment and consumption for pairs trading financial markets on small time interval

Sahar Albosaily·Serge Pergamenshchikov

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Abstract

In this paper we consider a pairs trading financial market with the spread of risky assets defined by the Ornstein-Uhlenbeck (OU) process. We implement an optimal strategy for power utility functions for investment/consumption problem. Through the Feynman-Kac (FK) method, we study the Hamilton-Jacobi-Bellman (HJB) equation for this problem. Moreover, the existence and uniqueness has been shown for classical solution for the HJB equation. In addition, the numeric approximation for the solution of the HJB equation has been studied and the convergence rate has been established and it is been found that the convergence rate is extremely explosive.

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Sahar Albosaily, Serge Pergamenshchikov. 2017-12-08. Optimal investment and consumption for pairs trading financial markets on small time interval. https://arxiv.org/abs/1712.04333

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