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On upper gain bound for trading strategy based on cointegration

100%

Łochowski R.

Metody Ilościowe w Badaniach Ekonomicznych

2010

vol. 11

issue 1

110-117

A long-run trading strategy based on cointegration relationship between prices of two commodities is considered. A linear combination of the prices is assumed to be a stationary AR(1) process. In some range of parameters, AR(1) process is obtained by discrete sampling of Ornstein-Uhlenbeck process. This allows to calculate approximate number of transactions in long run trade horizon and obtain approximate upper bound for possible gain.

ON AN UPPER GAIN BOUND FOR STRATEGIES WITH CONSTANT AND PROPORTIONAL NUMBER OF ASSETS TRADED

63%

Łochowski R.

Metody Ilościowe w Badaniach Ekonomicznych

2013

vol. 14

issue 2

29-38

We introduce general formulas for the upper bound of gain obtained from any finite-time trading strategy in discrete and continuous time models. We consider strategies with constant number of assets traded and strategies with proportional number of assets traded. Unfortunately, the estimates obtained in the discrete case become trivial in the continuous case, hence we introduce transaction costs. This leads to the interesting estimates in terms of the so called truncated variation of the price series. We apply the obtained estimates in specific cases of financial time series.

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2 Metody Ilościowe w Badaniach Ekonomicznych

2 Łochowski R.

1 2013

1 2010

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On upper gain bound for trading strategy based on cointegration

ON AN UPPER GAIN BOUND FOR STRATEGIES WITH CONSTANT AND PROPORTIONAL NUMBER OF ASSETS TRADED