Application of Bi-Directional Grid Constrained Stochastic Processes to Algorithmic Trading
- 1 University of Southern Queensland, Australia
Abstract
Bi-directional Grid Constrained (BGC) Stochastic Processes (BGCSP) become more constrained the further they drift away from the origin or time axis are examined here. As they drift further away from the time axis, then the greater the likelihood of stopping, as if by two hidden reflective barriers. The theory of BGCSP is applied to a trading environment in which long and short trading is available. The stochastic differential equation of the Grid Trading Problem (GTP) is proposed, proved and its solution is simulated to derive new findings that can lead to further research in this area and the reduction of risk in portfolio management.
DOI: https://doi.org/10.3844/jmssp.2021.22.29
Copyright: © 2021 Aldo Taranto and Shahjahan Khan. This is an open access article distributed under the terms of the
Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
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Keywords
- Grid Trading
- Random Walks
- Probability of Ruin
- Stochastic Differential Equation
- Bi-Directional Grids
- Trending Grids
- Mean Reversion Grids