CONTENTS
ACKNOWLEDGEMENT …………………………..............................................1
EXECUTIVE SUMMARY ………………………………………………………………..2
PAIRS TRADING: INTRODUCTION……………………………………………………..3
KEY CHARACTERISTICS………………………………………………………………….5
INSTRUMENTS USED FOR PAIRS TRADING ………………………………………...8
STRATEGY …………………………………………………………………………………10
TESTING FOR MEAN REVERSION ……………………………………………………10
PAIRS TRADING MODEL ………………………………………………………………..11
a. Screening for Pairs
b. Trading Rules
c. Risk Management
d. Risk involved
STEPS IN PAIR TRADING ……………………………………………………………….14
CASES ……………………………………………………………………………………….15
a. Bank of Baroda –Bank of India Pair
b. Infosys—TCS Pair
c. APIL—CESC Pair
CONCLUSION …………………………………………………………………………..22
BIBLIOGRAPHY …………………………………………………………………………23
ACKNOWLEDGEMENT
I take immense pleasure in submitting the project on “PAIR TRADING
AND CONVERGENGE ARBITRAGE” This project has helped me
understand the intricacies involved in pair trading.
Firstly I would like to thank Prof.Navin Bhatia for giving me an
Opportunity to work with him. I would like to acknowledge with special
thanks the help of Dr. Poornima Dubey for helping in compiling and
completion of the project and express my earnest gratitude towards her
and for the inputs provided by her which h ...