Automated trading system and methodology for realtime identification of statistical arbitrage market opportunities

Abstract

A program for identifying and automatically acting on statistical arbitrage opportunities between related equities and contracts. The present invention describes an improved technique to perform statistical-pairs arbitraging in a dynamic marketplace with less risk than prior art approaches. The present invention employs an array of recent data and performance ratios involving bid and ask prices for correlated items, such as stocks.

What is claimed is: 
     
         1 . A trading system comprising:
 a memory containing data on a plurality of investment items,   wherein each investment item has associated therewith bid data and ask data over a given period, and a number of ratio indicators on respective bid/ask spreads between respective pairs of said investment items; and   a processor, connected to said memory, calculating from first and second ratio indicators a valuation of a given pair of investment items in relation to each other,   wherein said first ratio indicator comprises the division of a bid of a first investment item by an ask of a second investment item, and   wherein said second ratio indicator comprises the division of an ask of said first investment item by a bid of said second investment item,   whereby said first and second ratio indicators provide a valuation between at least said first and second investment items, and improved arbitrage and other investment opportunities.   
     
     
         2 . The trading system according to  claim 1 , wherein at least one of said first and second ratio indicators are precomputed and retrieved from said memory. 
     
     
         3 . The trading system according to  claim 1 , wherein at least one of said first and second ratio indicators are not precomputed and is calculated from said bid and ask data in said memory. 
     
     
         4 . The trading system according to  claim 1 , wherein the given pair of investment items are selected from the group consisting of commodities, contracts, futures, equities, options and combinations thereof. 
     
     
         5 . The trading system according to  claim 1 , wherein said valuation is performed upon occurrence of a market depth change. 
     
     
         6 . The trading system according to  claim 1 , wherein, upon occurrence of a valuation disparity from a normal position, said processor initiates a buy or sell order on at least one of said first and second investment items. 
     
     
         7 . The trading system according to  claim 6 , wherein said processor monitors said buy or sell orders. 
     
     
         8 . The trading system according to  claim 1 , wherein said processor automatically initiates an order upon detection of a trigger condition. 
     
     
         9 . A method for trading investment items comprising:
 retrieving data, from a memory, on a plurality of investment items stored therein,   wherein each investment item has associated therewith bid data and ask data over a given period, and a number of ratio indicators on respective bid/ask spreads between respective pairs of said investment items;   calculating, by a processor, a first ratio indicator comprising the division of a bid of a first investment item by an ask of a second investment item;   calculating, by a processor, a second ratio indicator comprising the division of an ask of said first investment item and a bid of said second investment item; and   calculating, by a processor, a valuation based on said first and second ratio indicators.   
     
     
         10 . The method according to  claim 9 , wherein at least one of said first and second ratio indicators are precomputed and retrieved from said memory. 
     
     
         11 . The method according to  claim 9 , wherein at least one of said first and second ratio indicators are not precomputed and is calculated from said bid and ask data in said memory. 
     
     
         12 . The method according to  claim 9 , wherein the investment items are selected from the group consisting of commodities, contracts, futures, equities, options and combinations thereof. 
     
     
         13 . The method according to  claim 9 , wherein said step of calculating is performed upon occurrence of a market depth change. 
     
     
         14 . The method according to  claim 9 , wherein, upon occurrence of a valuation disparity from a normal position, said processor initiates a buy or sell order on at least one of said first and second investment items. 
     
     
         15 . The method according to  claim 14 , wherein said processor monitors said buy or sell orders. 
     
     
         16 . The method according to  claim 15 , wherein processor automatically initiates an order upon detection of a trigger condition. 
     
     
         17 . A trading system comprising:
 a database, said database containing data related to plurality of investment items,   each investment item having associated therewith bid data and ask data over a given period, and a number of ratio indicators on respective bid/ask spreads between respective pairs of said investment items, and   a processor, said processor, connected to said database, said processor calculating a first said ratio indicator by dividing a bid from a first investment item by an ask of a second investment item, and calculating a second ratio indicator by dividing an ask of said first investment item by a bid of said second investment item,   whereby said ratio first and second ratio indicators for said first and second investment items provide a valuation, improved arbitrage and other investment opportunities.   
     
     
         18 . The trading system according to  claim 17 , wherein each of said investment items are selected from the group consisting of commodities, contracts, futures, equities, options and combinations thereof. 
     
     
         19 . The trading system according to  claim 17 , wherein said valuation is performed upon occurrence of a market depth change. 
     
     
         20 . The trading system according to  claim 17 , wherein said processor monitors the data and ratio indicators in said database until a normal position occurs, and
 wherein said processor automatically initiates an order upon detection of a trigger condition.