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Computation of the Ex-Post Optimal Strategy for the Trading of a Single Financial Asset

In: Artificial Economics

Author

Listed:
  • Olivier Brandouy

    (UMR CNRS-USTL 8179)

  • Philippe Mathieu

    (UMR CNRS-USTL 8179)

  • Iryna Veryzhenko

    (Université de Lille 1)

Abstract

In this paper we explain how to compute the maximum amount of money one investor can earn in trading a single financial asset under a set of trading constraints. The obtained algorithm allows to identify the ex-post optimal strategy S* over a set of (known) prices, which is unconventional in Finance. We deliberately adopt such a simplification to show that even if one posits a complete knowledge of the “future”, the determination of S* is far from triviality, especially in a framework with transaction costs. We review some solutions that are exponential and propose a new polynomial algorithm. Among others, our results shed light on a not so documented aspect of financial markets complexity, propose an absolute boundary for the profits one can realize in a specific time window and against which any investment strategy can be gauged.

Suggested Citation

  • Olivier Brandouy & Philippe Mathieu & Iryna Veryzhenko, 2009. "Computation of the Ex-Post Optimal Strategy for the Trading of a Single Financial Asset," Lecture Notes in Economics and Mathematical Systems, in: Cesáreo Hernández & Marta Posada & Adolfo López-Paredes (ed.), Artificial Economics, chapter 0, pages 171-184, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-02956-1_14
    DOI: 10.1007/978-3-642-02956-1_14
    as

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