COLT 2005: Learning Theory pp 606-620 | Cite as
Trading in Markovian Price Models
Abstract
We examine a Markovian model for the price evolution of a stock, in which the probability of local upward or downward movement is arbitrarily dependent on the current price itself (and perhaps some auxiliary state information). This model directly and considerably generalizes many of the most well-studied price evolution models in classical finance, including a variety of random walk, drift and diffusion models. Our main result is a “universally profitable” trading strategy — a single fixed strategy whose profitability competes with the optimal strategy (which knows all of the underlying parameters of the infinite and possibly nonstationary Markov process).
Keywords
Random Walk Trading Strategy Competitive Ratio Price Dynamic Price MovementPreview
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