Trend Following Trading under a Regime Switching Model

@article{Dai2010TrendFT,
  title={Trend Following Trading under a Regime Switching Model},
  author={M. Dai and Qianru Zhang and Q. J. Zhu},
  journal={SIAM J. Financial Math.},
  year={2010},
  volume={1},
  pages={780-810}
}
This paper is concerned with the optimality of a trend following trading rule. The idea is to catch a bull market at its early stage, ride the trend, and liquidate the position at the first evidence of the subsequent bear market. We characterize the bull and bear phases of the markets mathematically using the conditional probabilities of the bull market given the up to date stock prices. The optimal buying and selling times are given in terms of a sequence of stopping times determined by two… CONTINUE READING

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