NDLI: Optimality conditions for a trend-following strategy

Content Provider	IEEE Xplore Digital Library
Author	Hoi Tin Kong Qing Zhang Yin, G.G.
Copyright Year	2011
Description	Author affiliation: Department of Mathematics, Boyd GSRC, The University of Georgia, Athens, 30602-7403, USA (Qing Zhang) \|\| Department of Mathematics, Wayne State University, Detroit, MI 48202, USA (Yin, G.G.) \|\| Department of Mathematics, University of Georgia, Athens, 30602, USA (Hoi Tin Kong)
Abstract	Based on trend-following trading strategies that are widely used in the investment world, this work provides a set of sufficient conditions that determines the optimality of the traditional trend-following strategies when the trends are completely observable. A dynamic programming approach is used to verify the optimality under these conditions. The value functions are characterized by the associated HJB equations, and are shown to be either linear functions or infinity depending on the parameter values. The results reveal two counter-intuitive facts: (a) trend following may not lead to optimal reward in some cases even when/if the investor knows exactly when a trend change occurs; (b) stock volatility is not relevant in trend following when trends are observable.
Starting Page	7081
Ending Page	7086
File Size	176535
Page Count	6
File Format	PDF
ISBN	9781612848006
ISSN	07431546
e-ISBN	9781612848013
e-ISBN	9781612847993
DOI	10.1109/CDC.2011.6160490
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2011-12-12
Publisher Place	USA
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Equations Mathematical model Switches Investments Dynamic programming Closed-form solutions trend-following strategy regime-switching process quasi-variational inequality
Content Type	Text
Resource Type	Article
Subject	Control and Optimization Control and Systems Engineering Modeling and Simulation

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