Pairs Trading: The Ornstein-Uhlenbeck Process and Pairs Ration Determination

In this video, we continue going over some of the material in the book Optimal Mean Reversion Trading: Mathematical Analysis And Practical Applications by Tim Siu-tang Leung, Xin Li. Continuing with what we have done previously, we will use maximum likelihood estimation to estimate the Ornstein-Uhlenbeck parameters. This will be in the context of pairs trading, so we will extend what we’ve done to estimate the optimal share ratio that comprises the pair.

Previous videos in this series:

What is a pairs trade: https://youtu.be/vHzlZECzyPE
Maximum Likelihood Estimation with Ornstein-Uhlenbeck (part 1): https://youtu.be/GdqVY1kZ4XI
Maximum Likelihood Estimation with Ornstein-Uhlenbeck (part 2)
: https://youtu.be/3906CWKhLqQ

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