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Efficient Computation of Optimal Trading Strategies

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  • Victor Boyarshinov
  • Malik Magdon-Ismail

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.

Suggested Citation

  • Victor Boyarshinov & Malik Magdon-Ismail, 2010. "Efficient Computation of Optimal Trading Strategies," Papers 1009.4683, arXiv.org.
    • Handle: RePEc:arx:papers:1009.4683
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    References listed on IDEAS

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    1. Hong Liu, 2004. "Optimal Consumption and Investment with Transaction Costs and Multiple Risky Assets," Journal of Finance, American Finance Association, vol. 59(1), pages 289-338, February.
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    Cited by:

    1. Mogens Graf Plessen & Alberto Bemporad, 2017. "A posteriori multi-stage optimal trading under transaction costs and a diversification constraint," Papers 1709.07527, arXiv.org, revised Apr 2018.

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