Dear All, You are kindly invited to attend the next Stochastics and Finance seminar. On Tuesday September 15 at 3pm (Sydney time) Ruyi Liu will give a talk via Zoom. Please note the change of usual hour this semester. Zoom link: https://uni-sydney.zoom.us/j/94360647811 Speaker: Ruyi Liu (Shandong University) Title: Pairs-trading under geometric Brownian motions: An optimal strategy with cutting losses Abstract: Pairs trading is about simultaneously trading a pair of stocks. A pairs trade is triggered when their prices diverge and consists of a short position of the strong stock and a long position of the weak one. Pairs trading bets on the reversal of their price strengths. In this paper, we study the optimal pairs trading problem under general geometric Brownian motions and focus on trading with cutting losses. The objective is to trade the pairs over time to maximize an overall return with a fixed transaction cost. Our optimal policy is characterized by threshold curves obtained by solving the associated HJB equations. We provide sufficient conditions that guarantee the optimality of our trading rules. We also present numerical examples to illustrate. http://www.maths.usyd.edu.au/u/SemConf/Stochastics_Finance/seminar.html Please feel free to forward this message to anyone who might be interested in this talk. Kind regards, Anna