On Robustness of Double Linear Policy with Time-Varying Weights

Xin-Yu Wang and Chung-Han Hsieh

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Abstract: In this paper, we extend the existing double linear policy by incorporating time-varying weights instead of constant weights and study a certain robustness property, called robust positive expectation (RPE), in a discrete-time setting. We prove that the RPE property holds by employing a novel elementary symmetric polynomials characterization approach and derive an explicit expression for both the expected cumulative gain-loss function and its variance. To validate our theory, we perform extensive Monte Carlo simulations using various weighting functions. Furthermore, we demonstrate how this policy can be effectively incorporated with standard technical analysis techniques, using the moving average as a trading signal.

Date: 2023-03
New Economics Papers: this item is included in nep-cmp and nep-des
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Published in Proceedings of the IEEE Conference of Decision and Control (CDC), 2023

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