Generalization of Affine Feedback Stock Trading Results to Include Stop-Loss Orders

Chung-Han Hsieh

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Abstract: The takeoff point of this paper is to generalize the existing stock trading results for a class of affine feedback controller to include consideration of a stop-loss order. Using the geometric Brownian motion as the underlying stock price model, our main result is to provide a closed-form expression for the cumulative distribution function for the trading profit or loss. In addition, we show that the affine feedback controller with stop-loss order indeed generalizes the result without stop order in the sense of distribution function. Some simulations and illustrative examples are also provided as supporting evidence of the theory. Moreover, we provide some technical results aimed at addressing the issues about survivability, cash-financing considerations, long-only property, and lower bound of the expected gain or loss.

Date: 2020-04
New Economics Papers: this item is included in nep-mst
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Published in Automatica, vol. 136, pp. 110051:1-110051:7, 2022

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