NDLI: How useful are mean-variance considerations in stock trading via feedback control?

Content Provider	IEEE Xplore Digital Library
Author	Malekpour, S. Barmish, B.R.
Copyright Year	2012
Description	Author affiliation: Department of Electrical and Computer Engineering, University of Wisconsin, Madison, 53706, USA (Malekpour, S.; Barmish, B.R.)
Abstract	In classical finance, when a stochastic investment outcome is characterized in terms of its mean and variance, it is implicitly understood that the underlying probability distribution is not heavily skewed. For example, in the “perfect” case when outcomes are normally distributed, mean-variance considerations tell the entire story. The main point of this paper is that mean-variance based measures of performance may be entirely inappropriate when a feedback control law is used instead of buy-and-hold to modulate one's stock position as a function of time. For example, when using a feedback gain K to increment or decrement one's stock position, we see that the resulting skewness measure S(K) for the trading gains or losses can easily become dangerously large. Hence, we argue in this paper that the selection of this gain K based on a classical mean-variance based utility function can lead to a distorted picture of the prospects for success. To this end, our analysis begins in a so-called idealized market with prices generated by Geometric Brownian Motion (GBM). In addition to the “red flag” associated with skewness, a controller efficiency analysis is also brought to bear. While all feedback gains K lead to efficient (non-dominated, Pareto optimal) controllers, in the mean-variance sense, we show that the same does not hold true when we use a return-risk pair which incorporates more information about the probability distribution for gains and losses. To study the efficiency issue in an application context, the paper also includes a simulation for Pepsico Inc. using the last five years of historical data.
Starting Page	2110
Ending Page	2115
File Size	424895
Page Count	6
File Format	PDF
ISBN	9781467320658
ISSN	07431546
e-ISBN	9781467320665
e-ISBN	9781467320641
DOI	10.1109/CDC.2012.6425946
Language	English
Publisher	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Publisher Date	2012-12-10
Publisher Place	USA
Access Restriction	Subscribed
Rights Holder	Institute of Electrical and Electronics Engineers, Inc. (IEEE)
Subject Keyword	Investments Loss measurement Feedback control Random variables Adaptive control Brownian motion Probability distribution
Content Type	Text
Resource Type	Article
Subject	Control and Optimization Control and Systems Engineering Modeling and Simulation

Sl.	Authority	Responsibilities	Communication Details
1	Ministry of Education (GoI), Department of Higher Education	Sanctioning Authority	https://www.education.gov.in/ict-initiatives
2	Indian Institute of Technology Kharagpur	Host Institute of the Project: The host institute of the project is responsible for providing infrastructure support and hosting the project	https://www.iitkgp.ac.in
3	National Digital Library of India Office, Indian Institute of Technology Kharagpur	The administrative and infrastructural headquarters of the project	Dr. B. Sutradhar bsutra@ndl.gov.in
4	Project PI / Joint PI	Principal Investigator and Joint Principal Investigators of the project	Dr. B. Sutradhar bsutra@ndl.gov.in Prof. Saswat Chakrabarti will be added soon
5	Website/Portal (Helpdesk)	Queries regarding NDLI and its services	support@ndl.gov.in
6	Contents and Copyright Issues	Queries related to content curation and copyright issues	content@ndl.gov.in
7	National Digital Library of India Club (NDLI Club)	Queries related to NDLI Club formation, support, user awareness program, seminar/symposium, collaboration, social media, promotion, and outreach	clubsupport@ndl.gov.in
8	Digital Preservation Centre (DPC)	Assistance with digitizing and archiving copyright-free printed books	dpc@ndl.gov.in
9	IDR Setup or Support	Queries related to establishment and support of Institutional Digital Repository (IDR) and IDR workshops	idr@ndl.gov.in

On arbitrage possibilities via linear feedback in an idealized Brownian Motion stock market

How useful are mean-variance considerations in stock trading via feedback control?.

On arbitrage possibilities via linear feedback in an idealized brownian motion stock market.

A drawdown formula for stock trading via linear feedback in a market governed by Brownian Motion

Optimal mean-variance selling strategies.

Optimal mean-variance selling strategies (2013).

Convergence to fractional brownian motion and loss probability.

Unitary Brownian motions are linearizable (1998)

A metric between probability distributions on finite sets of different cardinalities

How useful are mean-variance considerations in stock trading via feedback control?

Similar Documents

On arbitrage possibilities via linear feedback in an idealized Brownian Motion stock market

How useful are mean-variance considerations in stock trading via feedback control?.

On arbitrage possibilities via linear feedback in an idealized brownian motion stock market.

A drawdown formula for stock trading via linear feedback in a market governed by Brownian Motion

Optimal mean-variance selling strategies.

Optimal mean-variance selling strategies (2013).

Convergence to fractional brownian motion and loss probability.

Unitary Brownian motions are linearizable (1998)

A metric between probability distributions on finite sets of different cardinalities

How useful are mean-variance considerations in stock trading via feedback control?