Hypotheses
WMT–TGT GBM Optimal-Stopping Pair: Bidirectional Single Round Trip
Faithful port of Crawford Das, Tie and Zhang’s bidirectional GBM threshold policy. Trade WMT and TGT on USEQ daily bars, retaining one completed pair round trip per evaluation window. Adapt the paper’s share units to…
Hypothesis
Faithful port of Crawford Das, Tie and Zhang’s bidirectional GBM threshold policy. Trade WMT and TGT on USEQ daily bars, retaining one completed pair round trip per evaluation window. Adapt the paper’s share units to equal-dollar model units anchored at the first synchronized warm-up close: x1=100*WMT_close/WMT_anchor and x2=100*TGT_close/TGT_anchor. Freeze anchors throughout the window. This denomination adaptation is not an exact reproduction of the historical example. Use split-adjusted prices; dividends and stock-borrow costs are not fully modeled. Observe thresholds at synchronized daily closes and execute market orders at the next session opens. Risk route (b): source signal exits with entry gross exposure capped at 50% of equity, each leg capped at 25%, leverage 1. Preserve the source’s absence of stops, targets and time exits. After liquidation, remain inactive.
Analysis
Optimal Strategies for Round-Trip Pairs Trading Under Geometric Brownian Motions
Backtest and paper results are hypothetical. Trading involves risk of loss.