Final_1.pdf

PART THREE

Contents vii

• CHAPTER Background Material
  
  
  • Introduction
  
  
  • The CAPM Model
  
  
  • Market Neutral Strategy
  
  
  • Pairs Trading
  
  
  • Outline
  
  
  • Audience
  
  
  
  


• CHAPTER
  
  
  • Time Series
  
  
  • Overview
  
  
  • Autocorrelation
  
  
  • Time Series Models
  
  
  • Forecasting
  
  
  • Goodness of Fit versus Bias
  
  
  • Model Choice
  
  
  • Modeling Stock Prices
  
  
  
  


• CHAPTER
  
  
  • Factor Models
  
  
  • Introduction
  
  
  • Arbitrage Pricing Theory
  
  
  • The Covariance Matrix
  
  
  • Application: Calculating the Risk on a Portfolio
  
  
  • Application: Calculation of Portfolio Beta
  
  
  • Application: Tracking Basket Design
  
  
  • Sensitivity Analysis
  
  
  
  


• CHAPTER
  
  
  • Kalman Filtering
  
  
  • Introduction
  
  
  • The Kalman Filter
  
  
  • The Scalar Kalman Filter
  
  
  • Filtering the Random Walk
  
  
  • Application: Example with the Standard & Poor Index
  
  
  
  


• CHAPTER Statistical Arbitrage Pairs
  
  
  • Overview
  
  
  • History
  
  
  • Motivation
  
  
  • Cointegration
  
  
  • Applying the Model
  
  
  • A Trading Strategy
  
  
  • Road Map for Strategy Design
  
  
  
  


• CHAPTER
  
  
  • Pairs Selection in Equity Markets
  
  
  • Introduction
  
  
  • Common Trends Cointegration Model
  
  
  • Common Trends Model and APT
  
  
  • The Distance Measure
  
  
  • Interpreting the Distance Measure
  
  
  • Reconciling Theory and Practice
  
  
  
  


• CHAPTER
  
  
  • Testing for Tradability
  
  
  • Introduction
  
  
  • The Linear Relationship
    
    
    • Approach Estimating the Linear Relationship: The Multifactor
    
    
    
    
  
  
  • Estimating the Linear Relationship: The Regression Approach
  
  
  • Testing Residual for Tradability
  
  
  
  


• CHAPTER
  
  
  • Trading Design
  
  
  • Introduction
  
  
  • Band Design for White Noise
  
  
  • Spread Dynamics
  
  
  • Nonparametric Approach
  
  
  • Regularization
  
  
  • Tying Up Loose Ends
  
  
  
  


• CHAPTER Risk Arbitrage Pairs
  
  
  • Risk Arbitrage Mechanics
  
  
  • Introduction
  
  
  • History
  
  
  • The Deal Process
  
  
  • Transaction Terms
  
  
  • The Deal Spread
  
  
  • Trading Strategy
  
  
  • Quantitative Aspects
  
  
  
  


• CHAPTER
  
  
  • Trade Execution
  
  
  • Introduction
  
  
  • Specifying the Order
  
  
  • Verifying the Execution
  
  
  • Execution During the Pricing Period
  
  
  • Short Selling
  
  
  
  


• CHAPTER
  
  
  • The Market Implied Merger Probability
  
  
  • Introduction
  
  
  • Implied Probabilities and Arrow-Debreu Theory
  
  
  • The Single-Step Model
  
  
  • The Multistep Model
  
  
  • Reconciling Theory and Practice
  
  
  • Risk Management
  
  
  
  


• CHAPTER
  
  
  • Spread Inversion
  
  
  • Introduction
  
  
  • The Prediction Equation
  
  
  • The Observation Equation