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Martingales in Practice
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Martingales in Practice

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HangukQuant
Nov 23, 2022
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HangukQuant Research
HangukQuant Research
Martingales in Practice
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Last week, we dove into a trading strategy based on equity-based capital flows in currency markets. We also discussed formally the behavior of currencies from a risk-premium perspective. The idea that risk premiums arise from the desire of utility maximizing consumers with concave utility functions to smooth consumption was considered.

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Trading Currency Flows and More on Currency Premiums
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3 years ago · 4 likes · HangukQuant

This week, we look at trading martingales, and examine conditions under which martingales trade favorably to non-martingales. Our findings show that the relative performance of martingales are attributable to serial correlation in return and signal ratios.

Preview:

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Correction: the volatility drag in relation to aggressiveness can be quantified, although we have skipped the math in the paper. The Sharpe threshold is a special case based on our our trial parameters, which are presented in the code. The wording should be adjusted to: `In Kelly betting theory one should bet their risk adjusted return (that is mean over variance, not standard deviation) as volatility targets’.

Here is our previous work on volatility and leverage management which fills the theory gap not presented in our Martingale paper.

Papers with Code - Martingales in Practice (paid readers):

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