A Generalized Framework for Simultaneous Long-Short Feedback Trading

Joseph D. O'Brien, Mark E. Burke, Kevin Burke

Research output: Contribution to journalArticlepeer-review

Abstract

We present a generalization of the simultaneous long-short (SLS) trading strategy described in recent control literature wherein we allow for different parameters across the short and long sides of the controller; we refer to this new strategy as generalized SLS (GSLS). Furthermore, we investigate the conditions under which positive gain can be assured within the GSLS setup for both deterministic stock price evolution and geometric Brownian motion. In contrast to existing literature in this area (which places less emphasis on the practical application of SLS strategies), we suggest optimization procedures for selecting the control parameters based on historical data, and we extensively test these procedures across a large number of real stock price trajectories (495 in total). We find that the implementation of such optimization procedures greatly improves the performance compared with fixing control parameters, and, indeed, the GSLS strategy outperforms the simpler SLS strategy in general.

Original languageEnglish
Article number9149673
Pages (from-to)2652-2663
Number of pages12
JournalIEEE Transactions on Automatic Control
Volume66
Issue number6
DOIs
Publication statusPublished - Jun 2021

Keywords

  • Feedback-based stock trading
  • parameter optimization
  • simultaneous long-short strategy
  • Standard and Poor's 500 (S&P500)

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