Optimal pairs trading with dynamic mean-variance objective

Abstract Pairs trading is a typical example of convergence strategy. Investors buy relatively under-priced assets simultaneously, and sell over-priced to exploit temporary mispricing. This study examines optimal pairs strategies under symmetric non-symmetric constraints. Under the assumption that price spread pair correlated securities follows mean-reverting Ornstein-Uhlenbeck(OU) process, analytical are obtained mean-variance(MV) framework. Model estimation empirical studies on have been conducted using data stocks futures traded China’s market. These results indicate fairly good performance.