On a fundamental statistical edge principle
Fuente:
arXiv
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| Format: | Preprint |
| Publié: |
2024
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| _version_ | 1866911848881717248 |
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| author | Gastaldi, Tommaso |
| author_facet | Gastaldi, Tommaso |
| contents | This paper establishes that conditioning the probability of execution of new orders on the self-generated historical trading information (HTI) of a trading strategy is a necessary condition for a statistical trading edge. It is shown, in particular, that, given any trading strategy S that does not use its own HTI, it is always possible to construct a new strategy S* that yields a systematically increasing improvement over S in terms of profit and loss (PnL) by using the self-generated HTI. This holds true under rather general conditions that are frequently met in practice, and it is proven through a decision mechanism specifically designed to formally prove this idea. Simulations and real-world trading evidence are included for validation and illustration, respectively. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2404_14252 |
| institution | arXiv |
| publishDate | 2024 |
| record_format | arxiv |
| spellingShingle | On a fundamental statistical edge principle Gastaldi, Tommaso Portfolio Management 91B28, 91B82 This paper establishes that conditioning the probability of execution of new orders on the self-generated historical trading information (HTI) of a trading strategy is a necessary condition for a statistical trading edge. It is shown, in particular, that, given any trading strategy S that does not use its own HTI, it is always possible to construct a new strategy S* that yields a systematically increasing improvement over S in terms of profit and loss (PnL) by using the self-generated HTI. This holds true under rather general conditions that are frequently met in practice, and it is proven through a decision mechanism specifically designed to formally prove this idea. Simulations and real-world trading evidence are included for validation and illustration, respectively. |
| title | On a fundamental statistical edge principle |
| topic | Portfolio Management 91B28, 91B82 |
| url | https://arxiv.org/abs/2404.14252 |