On Tuesday May 24 at 2pm Julian Sester will give a talk via Zoom. Zoom link: https://uni-sydney.zoom.us/j/89793072039 Speaker: Julian Sester (Nanyang Technological University) Title: Robust statistical arbitrage strategies and their detection with neural networks Abstract: In this talk, we discuss the notion of robust statistical arbitrage, which refers to profitable trading strategies that take into account ambiguity about the underlying time-discrete financial model. Our investigations rely on the mathematical characterization of (non-robust) statistical arbitrage, which was originally introduced by Bondarenko in 2003. In contrast to pure arbitrage strategies, statistical arbitrage strategies are not entirely risk-free, but the notion allows to identify strategies which are profitable on average, given the outcome of a specific sigma-algebra. In particular, such strategies may exist even in arbitrage-free markets. Besides a characterization of robust statistical arbitrage, we also provide a super-/sub-replication theorem for the construction of statistical arbitrage strategies based on path-dependent options. Relying on these theoretical results, we then discuss an approach, based on deep neural networks, that allows identifying robust statistical arbitrage strategies in real-world financial markets. The presented novel methodology does not suffer from the curse of dimensionality nor does it depend on the identification of cointegrated pairs of assets and is therefore applicable even on high-dimensional financial markets or in markets where classical pairs trading approaches fail. Moreover, we provide a method to build an ambiguity set of admissible probability measures that can be derived from observed market data. Thus, the approach can be considered as being model-free and entirely data-driven. We showcase the applicability of our method by providing empirical investigations with highly profitable trading performances even in 50 dimensions, during financial crises, and when the cointegration relationship between asset pairs stops to persist. (based on joint works with Eva Lutkebohmert, Ariel Neufeld and Daiying Yin) https://www.maths.usyd.edu.au/u/SemConf/Stochastics_Finance/seminar.html Best wishes, Anna