Statistical mechanics of nonlinear nonequilibrium financial markets: Applications to optimized trading

Authors:
L. Ingber
Affiliations:
Lester Ingber Research P.O.B. 857, McLean, VA 22101, U.S.A.
Venue:
Mathematical and Computer Modelling: An International Journal
Year:
1996

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Abstract

A paradigm of statistical mechanics of financial markets (SMFM) using nonlinear non-equilibrium algorithms, first published in [1], is fit to multivariate financial markets using Adaptive Simulated Annealing (ASA), a global optimization algorithm, to perform maximum likelihood fits of Lagrangians defined by path integrals of multivariate conditional probabilities. Canonical momenta are thereby derived and used as technical indicators in a recursive ASA optimization process to tune trading rules. These trading rules are then used on out-of-sample data, to demonstrate that they can profit from the SMFM model, to illustrate that these markets are likely not efficient.