Optimal buy-and-hold strategies for financial markets with bounded daily returns

Gen Huey Chen*, Ming Yang Kao, Yuh Dauh Lyuu, Hsing Kuo Wong

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

28 Scopus citations

Abstract

In the context of investment analysis, we formulate an abstract online computing problem called a planning game and develop general tools for solving such a game. We then use the tools to investigate a practical buy-and-hold trading problem faced by long-term investors in stocks. We obtain the unique optimal static online algorithm for the problem and determine its exact competitive ratio. We also compare this algorithm with the popular dollar averaging strategy using actual market data.

Original languageEnglish (US)
Pages (from-to)447-459
Number of pages13
JournalSIAM Journal on Computing
Volume31
Issue number2
DOIs
StatePublished - 2001

Keywords

  • Balanced strategy
  • Buy-and-hold trading problems
  • Competitive analysis
  • Dollar averaging strategy
  • Linear programming
  • Minimax theorem
  • Online algorithms
  • Planning games
  • Zero-sum two-person games

ASJC Scopus subject areas

  • Computer Science(all)
  • Mathematics(all)

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