Stop-loss and Leverage in optimal Statistical Arbitrage with an application to Energy market. (arXiv:1706.07021v1 [q-fin.PM])

In this paper we develop a statistical arbitrage trading strategy with two key elements in hi-frequency trading: stop-loss and leverage. We consider, as in Bertram (2009), a mean-reverting process for the security price with proportional transaction costs; we show how to introduce stop-loss and leverage in an optimal trading strategy.