A posteriori multi-stage optimal trading under transaction costs and a diversification constraint

Mogens Graf Plessen and Alberto Bemporad

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Abstract: This paper presents a simple method for a posteriori (historical) multi-variate multi-stage optimal trading under transaction costs and a diversification constraint. Starting from a given amount of money in some currency, we analyze the stage-wise optimal allocation over a time horizon with potential investments in multiple currencies and various assets. Three variants are discussed, including unconstrained trading frequency, a fixed number of total admissable trades, and the waiting of a specific time-period after every executed trade until the next trade. The developed methods are based on efficient graph generation and consequent graph search, and are evaluated quantitatively on real-world data. The fundamental motivation of this work is preparatory labeling of financial time-series data for supervised machine learning.

Date: 2017-09, Revised 2018-04
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Published in The Journal of Trading Summer 2018, 13 (3) 67-83

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1709.07527

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