2016/10/31 by Bernhard K. Meister, Meister, Bernhard K. · 1 citation
Computer Science · Economics, Econometrics and Finance · Engineering · #Economic theories and models #FOS: Economics and business #Portfolio Management (q-fin.PM) #Reinforcement Learning in Robotics #Smart Grid Energy Management #q-fin.PM
paper · pdf · doi:10.48550/arxiv.1610.10029
12 pages
arxiv created 2016/10/31 · openalex publication_date 2016/10/31 · arxiv updated 2016/11/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
The influence of Commodity Trading Advisors (CTA) on the price process is explored with the help of a simple model. CTA managers are taken to be Kelly optimisers, which invest a fixed proportion of their assets in the risky asset and the remainder in a riskless asset. This requires regular adjustment of the portfolio weights as prices evolve. The CTA trading activity impacts the price change in the form of a power law. These two rules governing investment ratios and price impact are combined and lead through updating at fixed time intervals to a deterministic price dynamic. For different choices of the model parameters one gets qualitatively different dynamics. The result can be expressed as a phase diagram. Meta-CTA strategies can be devised to exploit the predictability inherent in the model dynamics by avoiding critical areas of the phase diagram or by taking a contrarian position at an opportune time.