Stochastic Optimization Methods for Buying-Low-and-Selling-High Strategies

This article is concerned with a numerical method using stochastic approximation approach for an optimal trading (buy and sell) strategy. The underlying asset price is governed by a mean-reverting stochastic process. The objective is to buy and sell the asset so as to maximize an overall expected re...

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Bibliographic Details
Published in:Stochastic analysis and applications 2009-04, Vol.27 (3), p.523-542
Main Authors: Song, Q. S., Yin, G., Zhang, Q.
Format: Article
Language:English
Subjects:
Approximation
Convergence
Exact sciences and technology
Mathematical analysis
Mathematical models
Mathematics
Numerical method
Optimization
Probability and statistics
Probability theory and stochastic processes
Sciences and techniques of general use
Sequential methods
Statistics
Stochastic analysis
Stochastic approximation
Stochastic processes
Stochasticity
Stock trading
Strategy
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Summary:This article is concerned with a numerical method using stochastic approximation approach for an optimal trading (buy and sell) strategy. The underlying asset price is governed by a mean-reverting stochastic process. The objective is to buy and sell the asset so as to maximize an overall expected return. One of the advantages of our approach is that the underlying asset is model free. Only mean reversion is required. Slippage cost is imposed on each transaction. Convergence of the algorithms is provided. Numerical examples are reported to demonstrate the results.
ISSN:0736-2994
1532-9356
DOI:10.1080/07362990902844181