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When to sell Apple and the NASDAQ? Trading bubbles with a stochastic disorder model

Shiryaev, Albert N., Zhitlukhin, M. V. and Ziemba, William T. (2013) When to sell Apple and the NASDAQ? Trading bubbles with a stochastic disorder model. Systemic Risk Centre Discussion Papers (5). Systemic Risk Centre, The London School of Economics and Political Science, London, UK.

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In this paper, the authors apply a continuous time stochastic process model developed by Shiryaev and Zhutlukhin for optimal stopping of random price processes that appear to be bubbles. By a bubble we mean the rising price is largely based on the expectation of higher and higher future prices. Futures traders such as George Soros attempt to trade such markets. The idea is to exit near the peak from a starting long position. The model applies equally well on the short side, that is when to enter and exit a short position. In this paper we test the model in two technology markets. These include the price of Apple computer stock AAPL from various times in 2009-2012 after the local low of March 6, 2009; plus a market where it is known that the generally very successful bubble trader George Soros lost money by shorting the NASDAQ-100 stock index too soon in 2000. The Shiryaev-Zhitlukhin model provides good exit points in both situations that would have been profitable to speculators following the model.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2013 The Authors
Divisions: Systemic Risk Centre
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D84 - Expectations; Speculations
C - Mathematical and Quantitative Methods > C0 - General > C00 - General
Date Deposited: 18 Feb 2015 09:56
Last Modified: 15 Sep 2023 23:31
Projects: ES/K002309/1
Funders: Economic and Social Research Council

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