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Optimization of trading physics models of markets

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  • L. Ingber

    ()

  • R.P. 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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Bibliographic Info

Paper provided by Lester Ingber in its series Lester Ingber Papers with number 01ot.

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Date of creation: 2001
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Handle: RePEc:lei:ingber:01ot

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  1. Laurent Laloux & Pierre Cizeau & Jean-Philippe Bouchaud & Marc Potters, 1998. "Noise dressing of financial correlation matrices," Science & Finance (CFM) working paper archive 500051, Science & Finance, Capital Fund Management.
  2. 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.
  3. 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.
  4. L. Ingber, 1996. "Canonical momenta indicators of financial markets and neocortical EEG," Lester Ingber Papers 96cm, Lester Ingber.
  5. 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.
  6. L. Ingber, 1993. "Adaptive Simulated Annealing (ASA)," Lester Ingber Software asa, Lester Ingber.
  7. 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.
  8. Merton, Robert C, 1973. "An Intertemporal Capital Asset Pricing Model," Econometrica, Econometric Society, vol. 41(5), pages 867-87, September.
  9. 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.
  10. L. Ingber, 1984. "Statistical mechanics of nonlinear nonequilibrium financial markets," Lester Ingber Papers 84nn, Lester Ingber.
  11. L. Ingber, 1993. "Simulated annealing: Practice versus theory," Lester Ingber Papers 93sa, Lester Ingber.
  12. L. Ingber, 1989. "Very fast simulated re-annealing," Lester Ingber Papers 89vf, Lester Ingber.
  13. Brock, William & Lakonishok, Josef & LeBaron, Blake, 1992. " Simple Technical Trading Rules and the Stochastic Properties of Stock Returns," Journal of Finance, American Finance Association, vol. 47(5), pages 1731-64, December.
  14. L. Ingber, 1996. "Adaptive simulated annealing (ASA): Lessons learned," Lester Ingber Papers 96as, Lester Ingber.
  15. 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.
  16. L. Ingber, 1996. "Statistical mechanics of nonlinear nonequilibrium financial markets: Applications to optimized trading," Lester Ingber Papers 96nf, Lester Ingber.
  17. L. Ingber & B. Rosen, 1993. "Genetic algorithms and very fast simulated reannealing: A comparison," Lester Ingber Papers 93ga, Lester Ingber.
  18. 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.
  19. L. Ingber, 1986. "Statistical mechanics of neocortical interactions," Lester Ingber Papers 86ni, Lester Ingber.
  20. 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.
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Cited by:
  1. L. Ingber, 2002. "Statistical mechanics of portfolios of options," Lester Ingber Papers 02po, Lester Ingber.
  2. L. Ingber, 1993. "ASA-README included with ASA code," Lester Ingber Papers 93as, Lester Ingber.
  3. L. Ingber & R.P. Mondescu, 2003. "Automated internet trading based on optimized physics models of markets," Lester Ingber Papers 03ai, Lester Ingber.

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