Computation of the Ex-Post Optimal Strategy for the Trading of a Single Financial Asset

Olivier Brandouy (), Philippe Mathieu () and Iryna Veryzhenko ()
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Olivier Brandouy: UMR CNRS-USTL 8179
Philippe Mathieu: UMR CNRS-USTL 8179
Iryna Veryzhenko: Université de Lille 1

Chapter Chapter 14 in Artificial Economics, 2009, pp 171-184 from Springer

Abstract: Abstract In this paper we explain how to compute the maximum amount of money one investor can earn in trading a single financial asset under a set of trading constraints. The obtained algorithm allows to identify the ex-post optimal strategy S* over a set of (known) prices, which is unconventional in Finance. We deliberately adopt such a simplification to show that even if one posits a complete knowledge of the “future”, the determination of S* is far from triviality, especially in a framework with transaction costs. We review some solutions that are exponential and propose a new polynomial algorithm. Among others, our results shed light on a not so documented aspect of financial markets complexity, propose an absolute boundary for the profits one can realize in a specific time window and against which any investment strategy can be gauged.

Keywords: Transaction Cost; Trading Strategy; Determination Algorithm; Price Series; Bipartite Network (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-02956-1_14

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DOI: 10.1007/978-3-642-02956-1_14

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