Optimal Mean-Reverting Spread Trading: Nonlinear Integral Equation Approach

We study several optimal stopping problems that arise from trading a mean-reverting price spread over a finite horizon. Modeling the spread by the Ornstein-Uhlenbeck process, we analyze three different trading strategies: (i) the long-short strategy; (ii) the short-long strategy, and (iii) the chooser strategy, i.e. the trader can enter into the spread by taking either long or short position. In each of these cases, we solve an optimal double stopping problem to determine the optimal timing for ...