Efficient Computation of Optimal Trading Strategies
Abstract
Given the return series for a set of instruments, a \emph{trading strategy} is a switching function that transfers wealth from one instrument to another at specified times. We present efficient algorithms for constructing (ex-post) trading strategies that are optimal with respect to the total return, the Sterling ratio and the Sharpe ratio. Such ex-post optimal strategies are useful analysis tools. They can be used to analyze the "profitability of a market" in terms of optimal trading; to develop benchmarks against which real trading can be compared; and, within an inductive framework, the optimal trades can be used to to teach learning systems (predictors) which are then used to identify future trading opportunities.
Keywords
Cite
@article{arxiv.1009.4683,
title = {Efficient Computation of Optimal Trading Strategies},
author = {Victor Boyarshinov and Malik Magdon-Ismail},
journal= {arXiv preprint arXiv:1009.4683},
year = {2010}
}
Comments
45 pages; working paper