Positive Expected Feedback Trading Gain for all Essentially Linearly Representable Prices

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Baumann, Michael Heinrich ; Grüne, Lars:
Positive Expected Feedback Trading Gain for all Essentially Linearly Representable Prices.
2016
Veranstaltung: The XVII Workshop on Quantitative Finance - Pisa 2016 , 28.-29.01.2016 , Pisa.
(Veranstaltungsbeitrag: Workshop , Vortrag )

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Abstract

We study the simultaneous long short (SLS) feedback trading strategy. This strategy is known to yield expected positive gain for zero start investment if the underlying stock returns are governed by a geometric Brownian motion or by Merton’s jump diffusion model. In this paper, we generalize these results to a set of price models called essentially linearly representable prices. Particularly, we show that the SLS trader’s expected gain does not depend on the chosen price model but only on the risk-free interest rate and that it is always positive.