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Optimization of Trading Physics Models of Markets

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  • Lester Ingber
  • Radu Paul Mondescu

Abstract

We describe an end-to-end real-time S&P futures trading system. Inner-shell stochastic nonlinear dynamic models are developed, and Canonical Momenta Indicators (CMI) are derived from a fitted Lagrangian used by outer-shell trading models dependent on these indicators. Recursive and adaptive optimization using Adaptive Simulated Annealing (ASA) is used for fitting parameters shared across these shells of dynamic and trading models.

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File URL: http://arxiv.org/pdf/physics/0007075
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number physics/0007075.

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Date of creation: Jul 2000
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Handle: RePEc:arx:papers:physics/0007075

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References

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  1. L. Ingber, 1986. "Statistical mechanics of neocortical interactions," Lester Ingber Papers 86ni, Lester Ingber.
  2. Brock, W. & Lakonishok, J. & Lebaron, B., 1991. "Simple Technical Trading Rules And The Stochastic Properties Of Stock Returns," Working papers 90-22, Wisconsin Madison - Social Systems.
  3. Brown, Philip & Kleidon, Allan W. & Marsh, Terry A., 1983. "New evidence on the nature of size-related anomalies in stock prices," Journal of Financial Economics, Elsevier, vol. 12(1), pages 33-56, June.
  4. Shinichi Sakata & Halbert White, 1998. "High Breakdown Point Conditional Dispersion Estimation with Application to S&P 500 Daily Returns Volatility," Econometrica, Econometric Society, vol. 66(3), pages 529-568, May.
  5. Ingber, Lester, 2000. "High-resolution path-integral development of financial options," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 283(3), pages 529-558.
  6. Mandelbrot, Benoit B, 1971. "When Can Price Be Arbitraged Efficiently? A Limit to the Validity of the Random Walk and Martingale Models," The Review of Economics and Statistics, MIT Press, vol. 53(3), pages 225-36, August.
  7. Taylor, Stephen J., 1982. "Tests of the Random Walk Hypothesis Against a Price-Trend Hypothesis," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(01), pages 37-61, March.
  8. repec:sfi:sfiwpa:500051 is not listed on IDEAS
  9. L. Ingber, 1996. "Canonical momenta indicators of financial markets and neocortical EEG," Lester Ingber Papers 96cm, Lester Ingber.
  10. L. Ingber & M.F. Wehner & G.M. Jabbour & T.M. Barnhill, 1991. "Application of statistical mechanics methodology to term-structure bond-pricing models," Lester Ingber Papers 91as, Lester Ingber.
  11. L. Ingber, 1996. "Statistical mechanics of nonlinear nonequilibrium financial markets: Applications to optimized trading," Lester Ingber Papers 96nf, Lester Ingber.
  12. L. Ingber & B. Rosen, 1992. "Genetic algorithms and very fast simulated reannealing: A comparison," Lester Ingber Papers 92ga, Lester Ingber.
  13. L. Ingber, 1993. "Simulated annealing: Practice versus theory," Lester Ingber Papers 93sa, Lester Ingber.
  14. L. Ingber, 1996. "Adaptive simulated annealing (ASA): Lessons learned," Lester Ingber Papers 96as, Lester Ingber.
  15. L. Ingber, 1993. "Adaptive Simulated Annealing (ASA)," Lester Ingber Software asa, Lester Ingber.
  16. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  17. L. Ingber, 1984. "Statistical mechanics of nonlinear nonequilibrium financial markets," Lester Ingber Papers 84nn, Lester Ingber.
  18. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
  19. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
  20. L. Ingber, 1989. "Very fast simulated re-annealing," Lester Ingber Papers 89vf, Lester Ingber.
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Cited by:
  1. L. Ingber & R.P. Mondescu, 2003. "Automated internet trading based on optimized physics models of markets," Lester Ingber Papers 03ai, Lester Ingber.
  2. L. Ingber, 2002. "Statistical mechanics of portfolios of options," Lester Ingber Papers 02po, Lester Ingber.
  3. L. Ingber, 1993. "ASA-README included with ASA code," Lester Ingber Papers 93as, Lester Ingber.

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