IDEAS home Printed from https://ideas.repec.org/a/spr/joptap/v146y2010i1d10.1007_s10957-010-9662-9.html
   My bibliography  Save this article

Recursive Algorithms for Trailing Stop: Stochastic Approximation Approach

Author

Listed:
  • G. Yin

    (Wayne State University)

  • Q. Zhang

    (University of Georgia)

  • C. Zhuang

    (University of Southern California)

Abstract

Trailing stops are often used in stock trading to limit the maximum of a possible loss and to lock in a profit. This work develops stochastic approximation algorithms to estimate the optimal trailing stop percentage. A stochastic optimization approach is proposed to recursively estimate the desired trailing stop percentage. A modification using projection is developed to ensure that the approximation sequence constructed stays in a reasonable range. Convergence of the algorithm is obtained. Moreover, interval estimates are constructed. Simulation examples are presented to compare our algorithm with Monte Carlo methods. Finally, we use real market data to demonstrate the algorithms.

Suggested Citation

  • G. Yin & Q. Zhang & C. Zhuang, 2010. "Recursive Algorithms for Trailing Stop: Stochastic Approximation Approach," Journal of Optimization Theory and Applications, Springer, vol. 146(1), pages 209-231, July.
    • Handle: RePEc:spr:joptap:v:146:y:2010:i:1:d:10.1007_s10957-010-9662-9
    DOI: 10.1007/s10957-010-9662-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10957-010-9662-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10957-010-9662-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. G. Yin & Q. Zhang & F. Liu & R. H. Liu & Y. Cheng, 2006. "Stock Liquidation Via Stochastic Approximation Using Nasdaq Daily And Intra‐Day Data," Mathematical Finance, Wiley Blackwell, vol. 16(1), pages 217-236, January.
    2. Peter W. Glynn & Donald L. Iglehart, 1995. "Trading Securities Using Trailing Stops," Management Science, INFORMS, vol. 41(6), pages 1096-1106, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tim Leung & Hongzhong Zhang, 2017. "Optimal Trading with a Trailing Stop," Papers 1701.03960, arXiv.org, revised Mar 2019.
    2. Hongzhong Zhang, 2018. "Stochastic Drawdowns," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 10078, August.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Neofytos Rodosthenous & Hongzhong Zhang, 2020. "When to sell an asset amid anxiety about drawdowns," Mathematical Finance, Wiley Blackwell, vol. 30(4), pages 1422-1460, October.
    2. Hongzhong Zhang, 2018. "Stochastic Drawdowns," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 10078, August.
    3. Tim Leung & Hongzhong Zhang, 2017. "Optimal Trading with a Trailing Stop," Papers 1701.03960, arXiv.org, revised Mar 2019.
    4. Pemy, M. & Zhang, Q. & Yin, G., 2007. "Liquidation of a large block of stock," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1295-1305, May.
    5. Juozas Vaicenavicius, 2017. "Asset liquidation under drift uncertainty and regime-switching volatility," Papers 1701.08579, arXiv.org, revised Jan 2019.
    6. Neofytos Rodosthenous & Hongzhong Zhang, 2020. "When to sell an asset amid anxiety about drawdowns," Papers 2006.00282, arXiv.org.
    7. Moustapha Pemy & Qing Zhang & G. George Yin, 2008. "Liquidation Of A Large Block Of Stock With Regime Switching," Mathematical Finance, Wiley Blackwell, vol. 18(4), pages 629-648, October.
    8. Bochuan Dai & Ben R. Marshall & Nhut H. Nguyen & Nuttawat Visaltanachoti, 2021. "Risk reduction using trailing stop‐loss rules," International Review of Finance, International Review of Finance Ltd., vol. 21(4), pages 1334-1352, December.
    9. V. Abramov & M. K. Khan & R. A. Khan, 2008. "A probabilistic analysis of the trading the line strategy," Quantitative Finance, Taylor & Francis Journals, vol. 8(5), pages 499-512.
    10. Ma, Jingtang & Li, Wenyuan & Zheng, Harry, 2017. "Dual control Monte-Carlo method for tight bounds of value function in regime switching utility maximization," European Journal of Operational Research, Elsevier, vol. 262(3), pages 851-862.
    11. Zsolt Nika & Mikl'os R'asonyi, 2019. "Learning Threshold-Type Investment Strategies with Stochastic Gradient Method," Papers 1907.02457, arXiv.org.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:joptap:v:146:y:2010:i:1:d:10.1007_s10957-010-9662-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.