Motivated by the industry practice of pairs trading, we study the optimal timing strategies for trading a mean-reverting price spread. An optimal double stopping problem is formulated to analyze the timing to start and subsequently liquidate the position subject to transaction costs. Modeling...

Good market timing skills can be an important factor contributing to hedge funds' out-performance. In this paper we use a unique semi-parametric panel data model capable of providing consistent short period estimates of the return correlations with three market factors for a sample of Long/Short...

This paper introduces a type of generalized two-barrier proportional step options. For a down-and-out step call, its payoff at expiration is defined as the payoff of an identical vanilla option discounted by a knock-out factor e-ρOTL,H , where OTL,H is the total duration of the underlying price...