Next Article in Journal
Trajectory Shape Analysis and Anomaly Detection Utilizing Information Theory Tools
Next Article in Special Issue
Transfer Entropy for Nonparametric Granger Causality Detection: An Evaluation of Different Resampling Methods
Previous Article in Journal
Entropy Characterization of Random Network Models
Previous Article in Special Issue
The Entropic Linkage between Equity and Bond Market Dynamics
Article Menu
Issue 7 (July) cover image

Export Article

Open AccessArticle
Entropy 2017, 19(7), 320; doi:10.3390/e19070320

An Entropic Approach for Pair Trading

Department of Business Administration, Hokkai-Gakuen University, 4-1-40 Asahimachi, Toyohira-ku, Sapporo 062-8605, Japan
Academic Editors: Stelios Bekiros and Michael (Mike) Stutzer
Received: 29 April 2017 / Revised: 20 June 2017 / Accepted: 27 June 2017 / Published: 30 June 2017
(This article belongs to the Special Issue Entropic Applications in Economics and Finance)
View Full-Text   |   Download PDF [430 KB, uploaded 30 June 2017]   |  


In this paper, we derive the optimal boundary for pair trading. This boundary defines the points of entry into or exit from the market for a given stock pair. However, if the assumed model contains uncertainty, the resulting boundary could result in large losses. To avoid this, we develop a more robust strategy by accounting for the model uncertainty. To incorporate the model uncertainty, we use the relative entropy as a penalty function in the expected profit from pair trading. View Full-Text
Keywords: pair trading; model uncertainty; model risk; optimal stopping pair trading; model uncertainty; model risk; optimal stopping

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

Scifeed alert for new publications

Never miss any articles matching your research from any publisher
  • Get alerts for new papers matching your research
  • Find out the new papers from selected authors
  • Updated daily for 49'000+ journals and 6000+ publishers
  • Define your Scifeed now

SciFeed Share & Cite This Article

MDPI and ACS Style

Yoshikawa, D. An Entropic Approach for Pair Trading. Entropy 2017, 19, 320.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics



[Return to top]
Entropy EISSN 1099-4300 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top