![]() Our strategy is a very simple example of a buy-and-hold strategy. Of course, if $W<0$, our net position is short, which means we are currently holding more than $N$ dollars which is the initial value of the portfolio. \begin^K w_i\left(t\right) < 1$, then it means that our portfolio includes $\left(1-W\right)N$ dollars in cash. The most frequently used forms used are relative returns defined as These time-series can and do assume negative values and also, their statistical properties are usually more stable than the ones of price time-series. In addition, price time-series are usually non-stationary, that is their statistical properties are less stable over time.Īn alternative approach is to use time-series which correspond not to actual values but changes in the monetary value of the asset. Prices are usually only positive, which makes it harder to use models and approaches which require or produce negative numbers. However, price time-series have some drawbacks. Working with this type of time-series can be more intuitive as people are used to thinking in terms of prices. bonds, one could be using a time-series expressing the price of the bond as a percentage of a given reference value, in this case the par value of the bond. Similarly, if working with fixed income instruments, e.g. One approach would be to use the price time-series directly and work with numbers that correspond to some monetary value.įor example, a researcher could be working with time-series expressing the price of a given stock, like the time-series we used in the previous article. There are several ways one can go about when a trading strategy is to be developed. ![]()
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