Competitive analysis of on-line securities investment

Authors:
Shuhua Hu;Qin Guo;Hongyi Li
Affiliations:
School of Management, Xi'an Jiaotong University, Xi'an, China;School of Management, Xi'an Jiaotong University, Xi'an, China;Dept of Decision Sciences and Managerial Economics, The Chinese University of Hongkong, Hongkong, China
Venue:
AAIM'05 Proceedings of the First international conference on Algorithmic Applications in Management
Year:
2005

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Abstract

Based on the unidirectional conversion model, we investigate a practical buy-and-hold trading problem. This problem is useful for long-term investors, we use competitive analysis and game theory to design some trading rules in the securities markets. We present an online algorithm, Mixed Strategy, for the problem and prove its competitive ratio $1 + \frac{(n-1)t}{2}$, where n is the trading horizon and t is the daily fluctuations of securities prices. The Dynamic-Mixed Strategy is also presented to further reduce the competitive ratio. An investing example is simulated with the Mixed Strategy and Dollar Average Strategy based on the actual market data.