A closed-form solution for optimal mean-reverting trading strategies

The heat potentials method, borrowed from physics, is used to find the optimal profit-taking and stop-loss levels

CLICK HERE TO VIEW THE PDF

All market makers are confronted with the problem of defining profit-taking and stop-out levels. More generally, all execution traders holding a particular position for a client must determine at what levels an order needs to be fulfilled. Those optimal levels can be ascertained by maximising the trader’s Sharpe ratio in the context of Ornstein-Uhlenbeck processes via Monte Carlo experiments. In this article, Alex Lipton and Marcos Lopez de Prado develop an analytical

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe

You are currently unable to copy this content. Please contact info@risk.net to find out more.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to Risk.net? View our subscription options

Most read articles loading...

You need to sign in to use this feature. If you don’t have a Risk.net account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here