Abstract

http://ssrn.com/abstract=1896146
 


 



Constructing the Best Trading Strategy: A New General Framework


Philip Maymin


NYU Poly - Department of Finance and Risk Engineering

Zakhar Maymin


Independent

October 11, 2011


Abstract:     
We introduce a new general framework for constructing the best trading strategy for a given historical indicator. We construct the unique trading strategy with the highest expected return. This optimal strategy may be implemented directly, or its expected return may be used as a benchmark to evaluate how far away from the optimal other proposed strategies for the given indicators are. Separately, we also construct the unique trading strategy with the highest information ratio. In the normal case, when the traded security return is near zero, and for reasonable correlations, the performance differences are economically insignificant. However, when the correlation approaches one, the trading strategy with the highest expected return approaches its maximum information ratio of 1.32 while the trading strategy with the highest information ratio goes to infinity.

Number of Pages in PDF File: 33

Keywords: trading strategy, conditional, portfolio management, optimal, indicators

JEL Classification: G11, G14, G17

working papers series


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Date posted: July 28, 2011 ; Last revised: October 12, 2011

Suggested Citation

Maymin, Philip and Maymin, Zakhar, Constructing the Best Trading Strategy: A New General Framework (October 11, 2011). Available at SSRN: http://ssrn.com/abstract=1896146 or http://dx.doi.org/10.2139/ssrn.1896146

Contact Information

Philip Maymin (Contact Author)
NYU Poly - Department of Finance and Risk Engineering ( email )
Brooklyn, NY 11201
United States

Zakhar Maymin
Independent ( email )
Feedback to SSRN


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