Super-Replication of the Best Pairs Trade in Hindsight

For a market with m assets and T discrete trading sessions, Ordentlich and Cover (1998) found that the `Cost of Achieving the Best Rebalancing Rule in Hindsight' is p(T,m)=\sum\limits_{n_1+\cdot\cdot\cdot+n_m=T}\binom{T}{n_1,...,n_m}(n_1/T)^{n_1}\cdot\cdot\cdot(n_m/T)^{n_m}. Their super-replicating strategy is impossible to compute in practice. This paper gives a workable generalization: the cost (read: super-replicating price) of... Show more