Pair Trading Lab Helpdesk & Forum

Pair Trading => Models, Algorithms & Approaches => Topic started by: Michael Merrill on August 08, 2013, 02:24:32 pm

Title: Explain Entry and Exit of Ratio Model in Depth
Post by: Michael Merrill on August 08, 2013, 02:24:32 pm

I am trying to wrap my head around the ratio pairs model.  When entering does the z-score have to be, say +/- 1.5, or are you using Bollinger bands around the Delta and if the Delta crosses 1.5 SD you enter?  Same for exit logic. 

Thanks

Title: Re: Explain Entry and Exit of Ratio Model in Depth
Post by: admin on August 08, 2013, 02:37:28 pm

Ratio model - we use Bollinger Bands around the price ratio (p1/p2) and we enter on 2 SD cross by default.

Actually mathematically it is the same as entering on Z-score = 2, because Z-score is just delta/sd (in this model).

We plan to put detailed documentation of both models to wiki, but we are really short of time at the moment.