BERND PAPE Asset Allocation, Multivariate Position Based Trading ...

204 ACTA WASAENSIAlocal stability of the fundamental equilibrium within the overall dynamics. All fourregimes share the common eigenvalues:λ 1 = λ 2 =0, and (A9.10a)λ 3 =2(α B − 1)v b .(A9.10b)The remaining eigenvalues differ from one regime to another. Consider first the casewhere the mispricings in both stocks have the same sign:λ 4,±± = −4v(1 ± αls),(A9.11a)λ 5,±± = v 1+ √ 1 ± 16ls α − 4 , (A9.11b)λ 6,±± = v 1 − √ 1 ± 16ls α − 4 , (A9.11c)where the plus sigs apply to (p 1 >p f1 ,p 2 >p f2 ) and the minus signs to the regime(p 1