Optimal Trading Strategies for an Asset with Disordered Return
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Date
2015-09-18
Authors
Pastor, Kyle
Journal Title
Journal ISSN
Volume Title
Publisher
University of Waterloo
Abstract
We explore various trading strategies from a mathematical and practical perspective.
Using a geometric Brownian motion with a disorder to model asset price bubbles, we
apply this model to multiple periods and explore the trading strategies on real market
data (S&P500, NASDAQ and SSE Composite). We nd that the mathematical model
is sucessful in predicting large market events such as the 2008 crisis, however fails to
generate gains over times of healthy market growth. Three practical models are
also presented and show that bene cial trading can be performed using some simple
deterministic assumptions. The mathematical and practical methods are compared.
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Description
Keywords
Finance, Trading Strategies, Disordered Return, Brownian Motion, Girsanov