A meanvariance Portfolio Optimizing Trading Algorithm using regimeswitching Economic Parameters
(2016) FMS820 20161Mathematical Statistics
 Abstract
 In this master's thesis a model of algorithmic trading is constructed. The
model aims to create an optimal investment portfolio consisting of a riskfree
asset and a risky asset. The risky asset is in the form of a stock generated
using regimeswitching parameters with a Markov chain explaining the state
of the economy. The optimization of the portfolio is carried out under certain
assumptions and reasonable constraints on risk, transaction costs and
amount traded. The constraint on nancial risk is implemented through
the recognized meanvariance criterion, balancing the expected value of the
portfolio against the variance of the portfolio after every time period. The algorithm
is implemented using quadratic programming techniques... (More)  In this master's thesis a model of algorithmic trading is constructed. The
model aims to create an optimal investment portfolio consisting of a riskfree
asset and a risky asset. The risky asset is in the form of a stock generated
using regimeswitching parameters with a Markov chain explaining the state
of the economy. The optimization of the portfolio is carried out under certain
assumptions and reasonable constraints on risk, transaction costs and
amount traded. The constraint on nancial risk is implemented through
the recognized meanvariance criterion, balancing the expected value of the
portfolio against the variance of the portfolio after every time period. The algorithm
is implemented using quadratic programming techniques in Matlab.
By varying parameters of the model a sensitivity analysis is performed. Simulated
scenarios and the behaviour of the algorithm is presented in graphs.
The algorithm is found to be rational and outperforms a static portfolio in
every scenario. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/studentpapers/record/8888858
 author
 Blomgren, Jacob
 supervisor

 Erik LindstrÃ¶m ^{LU}
 organization
 course
 FMS820 20161
 year
 2016
 type
 H2  Master's Degree (Two Years)
 subject
 keywords
 nancial engineering, algorithmic trading, portfolio optimiza tion, meanvariance criterion, regimeswitching, quadratic programming, hid den markov model
 language
 English
 id
 8888858
 date added to LUP
 20160818 07:51:25
 date last changed
 20160818 07:51:25
@misc{8888858, abstract = {In this master's thesis a model of algorithmic trading is constructed. The model aims to create an optimal investment portfolio consisting of a riskfree asset and a risky asset. The risky asset is in the form of a stock generated using regimeswitching parameters with a Markov chain explaining the state of the economy. The optimization of the portfolio is carried out under certain assumptions and reasonable constraints on risk, transaction costs and amount traded. The constraint on nancial risk is implemented through the recognized meanvariance criterion, balancing the expected value of the portfolio against the variance of the portfolio after every time period. The algorithm is implemented using quadratic programming techniques in Matlab. By varying parameters of the model a sensitivity analysis is performed. Simulated scenarios and the behaviour of the algorithm is presented in graphs. The algorithm is found to be rational and outperforms a static portfolio in every scenario.}, author = {Blomgren, Jacob}, keyword = {nancial engineering,algorithmic trading,portfolio optimiza tion,meanvariance criterion,regimeswitching,quadratic programming,hid den markov model}, language = {eng}, note = {Student Paper}, title = {A meanvariance Portfolio Optimizing Trading Algorithm using regimeswitching Economic Parameters}, year = {2016}, }