Algorithmic determination of the maximum possible earnings for investment strategies |
Abstract:
This paper proposes a newmethod for determining the upper bound of any investment strategy'smaximumprofit, applied in a given time window [0,T]. This upper bound is define once all the prices are known at time T and therefore represents th ex-postmaximumefficiency of any investment strategy determined during the relevant time interval. This approach allows us to gauge in absolute terms those behaviors defined through atomic “buy” and “sell” actions, and can be extended tomore complex strategies.Weshowthat, even in the ex-post framework, establishing this upper bound when transaction costs are implemented is extremely complex.We first describe this problem using a linear programming framework. Thereafter, we propose to embed this question in a graph theory framework and to showthat determining the best investment behavior is equivalent to identifying an optimal path in an oriented, weighted, bipartite network or a weighted, directed, acyclic graph. We illustrate this method using realworld data and introduce a newtheory about absolute optimal behavior in the financialworld |
| Keywords: |
Optimization Algorithm Graph Investment strategy |
| Author(s): |
. |
| Source: |
Decision Support Systems 54 (2013) 816–825 |
| Subject: |
مدیریت مالی |
| Category: |
مقاله مجله |
| Release Date: |
2012 |
| No of Pages: |
10 |
| Price(Tomans): |
0 |
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