Implementation and evaluation of the strategy Pairs Trading for Colombian public debt bonds

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reponame:Repositorio Institucional EdocUR

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Fajardo Rodriguez, Sandra Milena; Magíster en Finanzas Cuantitativas
Facultad de Economía; Universidad del Rosario
Pairs trading; Spread process; Cointegration; Distance method; Fixed income; 330; Relaciones comerciales; Comercio exterior; Inflación y contabilidad; Cointegración
thesis / dissertation description
Pair trading is a statistical trading strategy based on the concept of mean reverting; investors select two related assets and establish a relation between them buying the underpriced asset and selling the overpriced. When the market returns to the equilibrium the strategy create profit from the short and long position. The empirical application of this paper proposes the evaluation of three methodologies for the implementation of the pair trading strategy using the information of Colombian public debt bonds. Finding that after applying two methodologies of backtesting stochastic stochastic approach show the best perfomance.