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Generalized Lyapunov functions and functionally generated trading strategies

Ruf, Johannes and Xie, Kangjianan (2019) Generalized Lyapunov functions and functionally generated trading strategies. Applied Mathematical Finance, 26 (4). pp. 293-327. ISSN 1350-486X

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Identification Number: 10.1080/1350486X.2019.1584041

Abstract

This paper investigates the dependence of functional portfolio generation, introduced by Fernholz (1999), on an extra finite variation process. The framework of Karatzas and Ruf (2017) is used to formulate conditions on trading strategies to be strong arbitrage relative to the market over sufficiently large time horizons. A mollification argument and Komlós theorem yield a general class of potential arbitrage strategies. These theoretical results are complemented by several empirical examples using data from the S&P 500 stocks.

Item Type: Article
Additional Information: © 2019 Informa UK Limited, trading as Taylor & Francis Group
Divisions: Mathematics
Subjects: Q Science > QA Mathematics
Date Deposited: 05 Feb 2019 14:54
Last Modified: 20 Jan 2020 06:45
URI: http://eprints.lse.ac.uk/id/eprint/100023

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