Gambler’s ruin problem and bi-directional grid constrained trading and investment strategies
Bi-Directional Grid Constrained (BGC) trading strategies have never been studied academically until now, are relatively new in the world of financial markets and have the ability to out-perform many other trading algorithms in the short term but will almost surely ruin an investment account in the l...
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| Format: | Article |
| Language: | English |
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LLC "CPC "Business Perspectives"
2020-08-01
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| Series: | Investment Management & Financial Innovations |
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| Online Access: | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/13892/IMFI_2020_03_Taranto.pdf |
| _version_ | 1826907980956696576 |
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| author | Aldo Taranto Shahjahan Khan |
| author_facet | Aldo Taranto Shahjahan Khan |
| author_sort | Aldo Taranto |
| collection | DOAJ |
| description | Bi-Directional Grid Constrained (BGC) trading strategies have never been studied academically until now, are relatively new in the world of financial markets and have the ability to out-perform many other trading algorithms in the short term but will almost surely ruin an investment account in the long term. Whilst the Gambler’s Ruin Problem (GRP) is based on martingales and the established probability theory proves that the GRP is a doomed strategy, this research details how the semimartingale framework is required to solve the grid trading problem (GTP), i.e. a form of BGC financial markets strategies, and how it can deliver greater return on investment (ROI) for the same level of risk. A novel theorem of GTP is derived, proving that grid trading, whilst still subject to the risk of ruin, has the ability to generate significantly more profitable returns in the short term. This is also supported by extensive simulation and distributional analysis. These results not only can be studied within mathematics and statistics in their own right, but also have applications into finance such as multivariate dynamic hedging, investment funds, trading, portfolio risk optimization and algorithmic loss recovery. In today’s uncertain and volatile times, investment returns are between 2%-5% per annum, barely keeping up with inflation, putting people’s retirement at risk. BGC and GTP are thus a rich source of innovation potential for improved trading and investing.
Acknowledgement(s)Aldo Taranto was supported by an Australian Government Research Training Program (RTP) Scholarship. The authors would like to thank A/Prof. Ravinesh C. Deo and A/Prof. Ron Addie of the University of Southern Queensland for their invaluable advice on refining this paper. |
| first_indexed | 2024-12-11T05:48:48Z |
| format | Article |
| id | doaj.art-edcea64b33bd41b4a8a626470ba8745f |
| institution | Directory Open Access Journal |
| issn | 1810-4967 1812-9358 |
| language | English |
| last_indexed | 2025-02-17T09:16:15Z |
| publishDate | 2020-08-01 |
| publisher | LLC "CPC "Business Perspectives" |
| record_format | Article |
| series | Investment Management & Financial Innovations |
| spelling | doaj.art-edcea64b33bd41b4a8a626470ba8745f2025-01-02T14:14:57ZengLLC "CPC "Business Perspectives"Investment Management & Financial Innovations1810-49671812-93582020-08-01173546610.21511/imfi.17(3).2020.0513892Gambler’s ruin problem and bi-directional grid constrained trading and investment strategiesAldo Taranto0https://orcid.org/0000-0001-6763-4997Shahjahan Khan1https://orcid.org/0000-0002-0446-086XResearcher in Mathematics and Statistics, School of Sciences, Faculty of Health, Engineering and Sciences, University of Southern Queensland, Toowoomba, QueenslandPh.D., Professor of Statistics, School of Sciences, Faculty of Health, Engineering and Sciences, University of Southern Queensland, Toowoomba, QueenslandBi-Directional Grid Constrained (BGC) trading strategies have never been studied academically until now, are relatively new in the world of financial markets and have the ability to out-perform many other trading algorithms in the short term but will almost surely ruin an investment account in the long term. Whilst the Gambler’s Ruin Problem (GRP) is based on martingales and the established probability theory proves that the GRP is a doomed strategy, this research details how the semimartingale framework is required to solve the grid trading problem (GTP), i.e. a form of BGC financial markets strategies, and how it can deliver greater return on investment (ROI) for the same level of risk. A novel theorem of GTP is derived, proving that grid trading, whilst still subject to the risk of ruin, has the ability to generate significantly more profitable returns in the short term. This is also supported by extensive simulation and distributional analysis. These results not only can be studied within mathematics and statistics in their own right, but also have applications into finance such as multivariate dynamic hedging, investment funds, trading, portfolio risk optimization and algorithmic loss recovery. In today’s uncertain and volatile times, investment returns are between 2%-5% per annum, barely keeping up with inflation, putting people’s retirement at risk. BGC and GTP are thus a rich source of innovation potential for improved trading and investing. Acknowledgement(s)Aldo Taranto was supported by an Australian Government Research Training Program (RTP) Scholarship. The authors would like to thank A/Prof. Ravinesh C. Deo and A/Prof. Ron Addie of the University of Southern Queensland for their invaluable advice on refining this paper.https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/13892/IMFI_2020_03_Taranto.pdfbi-directionalgamblermartingalesprobabilityruinsemimartingales |
| spellingShingle | Aldo Taranto Shahjahan Khan Gambler’s ruin problem and bi-directional grid constrained trading and investment strategies Investment Management & Financial Innovations bi-directional gambler martingales probability ruin semimartingales |
| title | Gambler’s ruin problem and bi-directional grid constrained trading and investment strategies |
| title_full | Gambler’s ruin problem and bi-directional grid constrained trading and investment strategies |
| title_fullStr | Gambler’s ruin problem and bi-directional grid constrained trading and investment strategies |
| title_full_unstemmed | Gambler’s ruin problem and bi-directional grid constrained trading and investment strategies |
| title_short | Gambler’s ruin problem and bi-directional grid constrained trading and investment strategies |
| title_sort | gambler s ruin problem and bi directional grid constrained trading and investment strategies |
| topic | bi-directional gambler martingales probability ruin semimartingales |
| url | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/13892/IMFI_2020_03_Taranto.pdf |
| work_keys_str_mv | AT aldotaranto gamblersruinproblemandbidirectionalgridconstrainedtradingandinvestmentstrategies AT shahjahankhan gamblersruinproblemandbidirectionalgridconstrainedtradingandinvestmentstrategies |