Mathematical sciences seminar: Statistical arbitrage



Professor Weian Zheng

East China Normal University


If a financial derivative can be traded consecutively and its terminal payoffs can be adjusted into a sum of a bounded process and a stationary process, then we can use the moving average of the historical payoffs to forecast and the corresponding errors form a generalized mean reversion process with null time average in long run. Thus we can price the derivatives by its moving average. One can even possibly get statistical arbitrage from certain derivative pricing. We particularly discuss the example of European call options. We show that there is a possibility to get statistical arbitrage from Black-Scholes’s option price.