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arXiv · 1509.07953

Optimal trading strategies - a time series approach

Peter A. Bebbington·Reimer Kuehn
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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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Peter A. Bebbington, Reimer Kuehn. 2016-03-25. Optimal trading strategies - a time series approach. https://doi.org/10.1088/1742-5468%2F2016%2F05%2F053209

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