Working Papers

WP485. A survey of statistical arbitrage pair trading with machine learning, deep learning, and reinforcement learning methods

Pair trading remains a cornerstone strategy in quantitative finance, having consistently attracted scholarly attention from both economists and computer scientists. Over recent decades, research has expanded beyond traditional linear frameworks—such as regression- and cointegration-based models—to embrace advanced methodologies, including machine learning (ML), deep learning (DL), reinforcement learning (RL), and deep reinforcement learning (DRL). These techniques have demonstrated superior capacity to capture nonlinear dependencies and complex dynamics in financial data, thereby enhancing predictive performance and strategy design.
Building on these academic developments, practitioners are increasingly deploying DL models to forecast asset price movements and volatility in equity and foreign exchange markets, leveraging the advantages of artificial intelligence (AI) for trading. In parallel, DRL has gained prominence in algorithmic trading, where agents can autonomously learn optimal trading policies by interacting with market environments, enabling systems that move beyond price prediction to dynamic signal generation and portfolio allocation.
This paper provides a comprehensive survey of ML-, DL-, RL-, and DRL-based approaches to pair trading within quantitative finance. By systematically reviewing existing studies and highlighting their methodological contributions, it offers researchers a structured foundation for replication and further development. In addition, the paper outlines promising avenues for future research that extend the application of AI-driven methods in statistical arbitrage and market microstructure analysis.