Finding Moving-Band Statistical Arbitrages via Convex-Concave Optimization

K. Johansson, T. Schmelzer, and S. Boyd

Manuscript, December 2023.

We propose a new method for finding statistical arbitrages that can contain more assets than just the traditional pair. We formulate the problem as seeking a portfolio with the highest volatility, subject to its price remaining in a band and a leverage limit. This optimization problem is not convex, but can be approximately solved using the convex-concave procedure, a specific sequential convex programming method. We show how the method generalizes to finding moving-band statistical arbitrages, where the price band midpoint varies over time.