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Optimal trading strategies - a time series approach

Research output: Contribution to journalArticlepeer-review

Peter Bebbington, Reimer Kuehn

Original languageEnglish
JournalJournal of Statistical Mechanics (JSTAT)
Volume2016
DOIs
Accepted/In press28 Feb 2015
Published19 May 2016

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Abstract

Motivated by recent advances in the spectral theory of auto-covariance matrices, we are led to revisit a reformulation of Markowitz' mean-variance portfolio optimization approach in the time domain. In its simplest incarnation it applies to a single traded asset and allows to find an optimal trading strategy which --- for a given return --- is minimally exposed to market price fluctuations. The model is initially investigated for a range of synthetic price processes, taken to be either second order stationary, or to exhibit second order stationary increments. Attention is paid to consequences of estimating auto-covariance matrices from small finite samples, and auto-covariance matrix cleaning strategies to mitigate against these are investigated. Finally we apply our framework to real world data.

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