Optimal Talmudic Zigzag
Apr. 23rd, 2018 03:31 pmhttps://dx.doi.org/10.2139/ssrn.3166840
This paper studies the Talmudic rule aka the 1/N rule aka the uniform investment strategy on the microscopic scale, that is on the scale of single transactions. We focus on the simplest case of only two assets and show that the Talmudic rule results in each transaction to increase geometric mean of assets, regardless of price change direction. Then, we answer the following question: given any sequence of prices, how to find its optimal subsequence, maximizing the total growth of the geometric mean of assets? We conclude with an algorithm that can be used to analyze various sequences of prices and help develop trading strategies based on the Talmudic rule.
This paper studies the Talmudic rule aka the 1/N rule aka the uniform investment strategy on the microscopic scale, that is on the scale of single transactions. We focus on the simplest case of only two assets and show that the Talmudic rule results in each transaction to increase geometric mean of assets, regardless of price change direction. Then, we answer the following question: given any sequence of prices, how to find its optimal subsequence, maximizing the total growth of the geometric mean of assets? We conclude with an algorithm that can be used to analyze various sequences of prices and help develop trading strategies based on the Talmudic rule.
