{"product_id":"pairs-trading-isbn-9780471460671","title":"Pairs Trading","description":"The first in-depth analysis of pairs trading\u003cbr\u003e Pairs trading is a market-neutral strategy in its most simple form. The strategy involves being long (or bullish) one asset and short (or bearish) another. If properly performed, the investor will gain if the market rises or falls. Pairs Trading reveals the secrets of this rigorous quantitative analysis program to provide individuals and investment houses with the tools they need to successfully implement and profit from this proven trading methodology. Pairs Trading contains specific and tested formulas for identifying and investing in pairs, and answers important questions such as what ratio should be used to construct the pairs properly.\u003cbr\u003e Ganapathy Vidyamurthy (Stamford, CT) is currently a quantitative software analyst and developer at a major New York City hedge fund.  Preface.  \u003cp\u003eAcknowledgments.\u003c\/p\u003e \u003cp\u003ePART ONE: BACKGROUND MATERIAL.\u003c\/p\u003e \u003cp\u003eChapter 1. Introduction.\u003c\/p\u003e \u003cp\u003eThe CAPM Model.\u003c\/p\u003e \u003cp\u003eMarket Neutral Strategy.\u003c\/p\u003e \u003cp\u003ePairs Trading.\u003c\/p\u003e \u003cp\u003eOutline.\u003c\/p\u003e \u003cp\u003eAudience.\u003c\/p\u003e \u003cp\u003eChapter 2. Time Series.\u003c\/p\u003e \u003cp\u003eOverview.\u003c\/p\u003e \u003cp\u003eAutocorrelation.\u003c\/p\u003e \u003cp\u003eTime Series Models.\u003c\/p\u003e \u003cp\u003eForecasting.\u003c\/p\u003e \u003cp\u003eGoodness of Fit versus Bias.\u003c\/p\u003e \u003cp\u003eModel Choice.\u003c\/p\u003e \u003cp\u003eModeling Stock Prices.\u003c\/p\u003e \u003cp\u003eChapter 3. Factor Models.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eArbitrage Pricing Theory.\u003c\/p\u003e \u003cp\u003eThe Covariance Matrix.\u003c\/p\u003e \u003cp\u003eApplication: Calculating the Risk on a Portfolio.\u003c\/p\u003e \u003cp\u003eApplication: Calculation of Portfolio Beta.\u003c\/p\u003e \u003cp\u003eApplication: Tracking Basket Design.\u003c\/p\u003e \u003cp\u003eSensitivity Analysis.\u003c\/p\u003e \u003cp\u003eChapter 4. Kalman Filtering.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eThe Kalman Filter.\u003c\/p\u003e \u003cp\u003eThe Scalar Kalman Filter.\u003c\/p\u003e \u003cp\u003eFiltering the Random Walk.\u003c\/p\u003e \u003cp\u003eApplication: Example with the Standard \u0026amp; Poor Index.\u003c\/p\u003e \u003cp\u003ePART TWO: STATISTICAL ARBITRAGE.\u003c\/p\u003e \u003cp\u003eChapter 5. Overview.\u003c\/p\u003e \u003cp\u003eHistory.\u003c\/p\u003e \u003cp\u003eMotivation.\u003c\/p\u003e \u003cp\u003eCointegration.\u003c\/p\u003e \u003cp\u003eApplying the Model.\u003c\/p\u003e \u003cp\u003eA Trading Strategy.\u003c\/p\u003e \u003cp\u003eRoad Map for Strategy Design.\u003c\/p\u003e \u003cp\u003eChapter 6. Pairs Selection in Equity Markets.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eCommon Trends Cointegration Model.\u003c\/p\u003e \u003cp\u003eCommon Trends Model and APT.\u003c\/p\u003e \u003cp\u003eThe Distance Measure.\u003c\/p\u003e \u003cp\u003eInterpreting the Distance Measure.\u003c\/p\u003e \u003cp\u003eReconciling Theory and Practice.\u003c\/p\u003e \u003cp\u003eChapter 7. Testing for Tradability.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eThe Linear Relationship.\u003c\/p\u003e \u003cp\u003eEstimating the Linear Relationship: The Multifactor Approach.\u003c\/p\u003e \u003cp\u003eEstimating the Linear Relationship: The Regression Approach.\u003c\/p\u003e \u003cp\u003eTesting Residual for Tradability.\u003c\/p\u003e \u003cp\u003eChapter 8. Trading Design.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eBand Design for White Noise.\u003c\/p\u003e \u003cp\u003eSpread Dynamics.\u003c\/p\u003e \u003cp\u003eNonparametric Approach.\u003c\/p\u003e \u003cp\u003eRegularization.\u003c\/p\u003e \u003cp\u003eTying Up Loose Ends.\u003c\/p\u003e \u003cp\u003ePART THREE: RISK ARBITRAGE PAIRS.\u003c\/p\u003e \u003cp\u003eChapter 9. Risk Arbitrage Mechanics.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eHistory.\u003c\/p\u003e \u003cp\u003eThe Deal Process.\u003c\/p\u003e \u003cp\u003eTransaction Terms.\u003c\/p\u003e \u003cp\u003eThe Deal Spread.\u003c\/p\u003e \u003cp\u003eTrading Strategy.\u003c\/p\u003e \u003cp\u003eQuantitative Aspects.\u003c\/p\u003e \u003cp\u003eChapter 10. Trade Execution.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eSpecifying the Order.\u003c\/p\u003e \u003cp\u003eVerifying the Execution.\u003c\/p\u003e \u003cp\u003eExecution During the Pricing Period.\u003c\/p\u003e \u003cp\u003eShort Selling.\u003c\/p\u003e \u003cp\u003eChapter 11. The Market Implied Merger Probability.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eImplied Probabilities and Arrow-Debreu Theory.\u003c\/p\u003e \u003cp\u003eThe Single-Step Model.\u003c\/p\u003e \u003cp\u003eThe Multistep Model.\u003c\/p\u003e \u003cp\u003eReconciling Theory and Practice.\u003c\/p\u003e \u003cp\u003eRisk Management.\u003c\/p\u003e \u003cp\u003eChapter 12. Spread Inversion.\u003c\/p\u003e \u003cp\u003eIntroduction.\u003c\/p\u003e \u003cp\u003eThe Prediction Equation.\u003c\/p\u003e \u003cp\u003eThe Observation Equation.\u003c\/p\u003e \u003cp\u003eApplying the Kalman Filter.\u003c\/p\u003e \u003cp\u003eModel Selection.\u003c\/p\u003e \u003cp\u003eApplications to Trading.\u003c\/p\u003e \u003cp\u003eIndex.\u003c\/p\u003e \u003cp\u003e\u003cb\u003eGANAPATHY VIDYAMURTHY\u003c\/b\u003e has been working in the financial markets for nearly a decade. During this time, he created the entire risk management software infrastructure for RBC Dominion Securities in New York, and built valuation models and automated execution strategies for UBS Warburg and JP Morgan Fleming. He is currently the principal of Himalaya Consulting.\u003c\/p\u003e \u003cp\u003eBeyond finance, Mr. Vidyamurthy’s interests range from discrete optimization to algorithmic music composition—a field in which he is often cited. \u003c\/p\u003e\u003cp\u003eMr. Vidyamurthy has a master’s degree in electrical communication engineering from the Indian Institute of Science and a master’s degree from the Courant Institute of Mathematical Sciences of New York University.\u003c\/p\u003e \u003cp\u003ePairs trading is the simplest possible example of employing a market neutral strategy. It involves the trading of securities in pairs comprised of a long position in one security and a short position in the other. If performed properly, an investor will be in the ideal position of gaining in any situation—whether the market rises or falls.\u003c\/p\u003e \u003cp\u003eAuthor Ganapathy Vidyamurthy examines two versions of pairs trading that arise in the context of statistical arbitrage and risk arbitrage. He offers a compelling point of view that integrates theory and practice—providing in-depth analysis and insight in both of these cases. Issues encountered when translating theory to practice are addressed in a direct manner, arming the investment professional with the quantitative tools needed to answer key questions relating to this type of trading. \u003c\/p\u003e\u003cp\u003eWritten in an easy, accessible style, the book is a seamless blend of ideas ranging from econometrics, control theory, and operations research to core financial theories like arbitrage pricing theory and the theory of contingent claims. It is organized in three information-packed parts. Part I sets the context for the rest of the book by introducing material on key topics including time series, factor models, and Kalman filtering. \u003c\/p\u003e\u003cp\u003ePart II of the book details statistical arbitrage pairs, a relative value arbitrage based on the premise that there is a long-run equilibrium between the prices of the stocks comprising the pair. Part III moves on to illustrate the trading techniques and strategies associated with risk arbitrage. This widely practiced arbitrage technique involves pairs trading that arises in the context of corporate events, especially mergers and acquisitions. You’ll also discover why—although they are called arbitrage strategies in the industry—they are by no means risk-free. \u003c\/p\u003e\u003cp\u003e\u003ci\u003ePairs Trading\u003c\/i\u003e contains specific and tested formulas for identifying and investing in pairs. To further facilitate an understanding of this method, a bulleted summary highlighting key points is provided at the end of every chapter. Peppered with humor and snippets of history, \u003ci\u003ePairs Trading\u003c\/i\u003e provides a framework for and insights on applying rigorous analysis to trading pairs in the equity markets.\u003c\/p\u003e","brand":"Wiley","offers":[{"title":"Default Title","offer_id":47989747417317,"sku":"NP9780471460671","price":136.0,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9780471460671.jpg?v=1761785335","url":"https:\/\/k12savings.com\/es\/products\/pairs-trading-isbn-9780471460671","provider":"K12savings","version":"1.0","type":"link"}