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A Statistical Arbitrage Strategy

Statistical arbitrage is a profit situation arising from pricing inefficiencies between securities. This is usually identified through mathematical modeling techniques. Hogan, Jarrow, and Warachka describe the dynamics of trading profits as a stochastic process. A test for statistical arbitrage can then be based on identification of the parameters of the process. This project implements such a test, and experiments on interest rates of deposits, FRA, and swap contracts from 2002 to 2005 by a defined trading strategy. We observe only one statistical arbitrage opportunity on the market by this trading strategy from test results.