Yan-Xia Lin

Loss protection in pairs trading through minimum profit bounds: a cointegration approach

Pairs trading is a comparative-value form of statistical arbitrage designed to exploit temporary random departures from equilibrium pricing between two shares. However, the strategy is not riskless. Market events as well as poor statistical modeling and parameter estimation may all erode potential profits. Since conventional loss limiting trading strategies are costly, a preferable situation is to integrate loss limitation within the statistical modeling itself. This paper uses cointegration principles to develop a procedure that embeds a minimum profit condition within a pairs trading strategy. We derive the necessary conditions for such a procedure and then use them to define and implement a five-step procedure for identifying eligible trades. The statistical validity of the procedure is verified through simulation data. Practicality is tested through actual data. The results show that, at reasonable minimum profit levels, the protocol does not greatly reduce trade numbers or absolute profits relative to an unprotected trading strategy.

Strong approximation for long memory processes with applications

In this paper we inverstigate the strong approximation of a linear process with long memory to a Gaussian process. The results are then applied to derive the law of the iterated logarithm and Darling–Erdős type theorem for long memory processes under ideal conditions.

Identity-Based authenticated broadcast encryption and distributed authenticated encryption

Since its introduction, broadcast encryption has attracted many useful applications. In this paper, we propose two identity-based schemes for authenticated broadcasting and distributed message authentication. The first scheme supports multiple broadcasters and allows each broadcaster to dynamically broadcast messages into an arbitrary group of receivers determined by the broadcaster. The receivers can obtain the broadcasted message using the identity of the broadcaster and his own secret decryption key; hence it ensures both confidentiality and authenticity of the message. The second scheme allows users (receivers) to send messages back to the broadcaster where the authentication of messages is done with the identity of the user. We also provide security proofs for our schemes under the random oracle model.

The invariance principle for linear processes with applications

Let Xt be a linear process defined by Xt 5 (k50 ‘ cket2k, where

Robust non-interactive oblivious transfer

ck,k

Finding the Optimal Pre-set Boundaries for Pairs Trading Strategy Based on Cointegration Technique

0% is a sequence of real numbers and

Identity-Based Broadcasting

ek,k 5 0,61,62,+++ % is a sequence of random variables+ Two basic results, on the invariance principle of the partial sum process of the Xt converging to a standard Wiener process on @0,1#, are presented in this paper+ In the first result, we assume that the innovations ek are independent and identically distributed random variables but do not restrict (k50 ‘ 6ck6 , ‘+ We note that, for the partial sum process of the Xt converging to a standard Wiener process, the condition (k50 ‘ 6ck6 , ‘ or stronger conditions are commonly used in previous research+ The second result is for the situation where the innovations ek form a martingale difference sequence+ For this result, the commonly used assumption of equal variance of the innovations ek is weakened+ We apply these general results to unit root testing+ It turns out that the limit distributions of the Dickey‐Fuller test statistic and Kwiatkowski, Phillips, Schmidt, and Shin ~KPSS! test statistic still hold for the more general models under very weak conditions+

Asymptotics for moving average processes with dependent innovations

We present a novel scheme of noninteractive m out of n oblivious transfer, which demonstrates significant improvement over the existing schemes in terms of completeness, robustness and flexibility. This scheme is useful for protection of user privacy in the Internet.

On spaces of estimating functions

Pairs trading is one of the arbitrage strategies that can be used in trading stocks on the stock market. This paper incorporates pairs trading with the use of cointegration technique to exploit stocks that are temporarily out of equilibrium. In determining which two stocks can be a pair, Banerjee, Dolado, Galbraith and Hendry (1993) and Vidyamurthy (2004) showed that the cointegration technique is more effective than correlation criterion for extracting profit potential in temporary pricing anomalies between two stock prices driven by common underlying factors. By using stationary properties of cointegration errors following an AR(1) process, this paper explores the ways in which the pre-set boundaries chosen to open a trade can influence the minimum total profit over a specified trading horizon. The minimum total profit relates to the pre-set minimum profit per trade and the number of trades during the trading horizon. The higher the pre-set boundaries for opening trades, the higher the profit per trade but the lower the trade numbers. The number of trades over a specified trading horizon is estimated by using the average trade duration and the average inter-trade interval. For any pre-set boundaries, both of these values are estimated by making an analogy to the mean first-passage time. The aims of this paper are to develop numerical algorithm to estimate the average trade duration, the average inter-trade interval, and the average number of trades and to use these to find optimal pre-set boundaries that maximize the minimum total profit.

Linear Systems Exponential Dichotomy and Structure of Sets of Hyperbolic Points

In this paper, we introduce a new concept called “Identity-Based Broadcasting Encryption” (IBBE), which can be applied to dynamic key management in secure broadcasting. Based on this new concept, in the proposed system a broadcaster can dynamically add or remove a user to or from the receiver group without any involvement of users. We classify our systems into three different scenarios and give three provably secure and elegant constructions of IBBE system based on the pairing. Our system naturally suits multi-group broadcasting, where a message can be selectively broadcasted to certain groups of users.