Generalised Lyapunov Functions and Functionally Generated Trading Strategies

Johannes Ruf and Kangjianan Xie

Papers from arXiv.org

Abstract: This paper investigates the dependence of functional portfolio generation, introduced by Fernholz (1999), on an extra finite variation process. The framework of Karatzas and Ruf (2017) is used to formulate conditions on trading strategies to be strong arbitrage relative to the market over sufficiently large time horizons. A mollification argument and Komlos theorem yield a general class of potential arbitrage strategies. These theoretical results are complemented by several empirical examples using data from the S&P 500 stocks.

Date: 2018-01
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