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Application of Pairs Trading Model to Exchange Traded Coffee Futures

Date created
2016-10
Authors/Contributors
Abstract
In this paper, we use the trading model as described by Kanamura, Rachev, & Fabozzi (2010) based on the pairs trading strategies using the Stochastic Spread Method and apply that to the exchange traded coffee futures (Generic ‘KC’ commodity’). We also explain the first-time hitting density, (Linetsky 2004) for mean reverting process and apply this mathematical model to our data in order to find the results. In our empirical evidence, we test the real-time data obtained from Bloomberg in an Excel model based on co-integration approach to spread trading. We also show that the profits are consistent using the theoretical and empirical models andthat profits depend on the mean reversion and volatility of the spread during the period under consideration.
Document
Description
MSc in Finance Project - Simon Fraser University
Copyright statement
Copyright is held by the author(s).
Scholarly level
Peer reviewed?
No
Language
English

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