Application of extreme value theory in Long-Short strategies
Name: DANILO SOARES MONTE-MOR
Type: MSc dissertation
Publication date: 17/12/2010
Advisor:
Name |
Role |
|---|---|
| ROGÉRIO ARTHMAR | Advisor * |
Examining board:
| Name |
Role |
|---|---|
| GUTEMBERG HESPANHA BRASIL | Internal Examiner * |
| ROGÉRIO ARTHMAR | Advisor * |
Summary: Increasingly has appeared on the market of investment Absolute Return Funds (Hedge Funds), which have the main objective to improve their performance through arbitrage strategies, as long-short strategies. It is the disproportionate evolution and even antagonistic of active prices that allows the players to structure strategies to generate additional returns, higher than the opportunity costs and independent of the movement of the market. In this work we used Extreme Value Theory (EVT), an important segment of probability, to model the series of direct relationship between prices of two pairs of assets. The quantiles obtained from such modeling and the quantile provided by normal were superimposed on data for periods subsequent to the period analyzed. From the comparison of such data we created a new quantitative long-short arbitrage strategy, called GEV Long-Short Strategy. Key-words: Arbitragy, Hedge Fund, Long-Short Strategy, Extreme Value Theory, Pair Trading.
