I'm just showing that the idea works when tested with real prices. This is how it's done. If you need examples of other people who didn't take into account comissions and slippage, but their work was appreciated, look at Black, Scholes, Merton etc. The moment in which the trades are done is irrelevant. As I said it could be day, week, month, year, whatever. It could be 1:46 PM. But I have historical daily and monthly closing prices for the examples. If you have historical data for the prices at 1:46 PM, send it to me and I will show you that the results will be very similar
A closing price is not a real price since you cannot trade at this price. Your portfolio returns $800 more than buy&hold over a 60-year period. This is not an outperformance when you take into account the costs associated with monthly rebalancing. There have been a lot of academic work that shows theoretical outperformance, but at the end of the day, what matters is whether a system works in real life or not, and based on your results your system doesn't have any real life value. You can't compare the work of Black and Scholes (option pricing model) to your work. They provided a framework for pricing options and everybody knows that it doesn't work in the real world without adjustments. Your work, on the other hand, is a system that apparently outperforms the market. It's not the moment in which the trade takes place that matters! What matters is that in your backtest you use the price that is not available until after the fact. Just google "look-ahead bias".
What do you think, would I post it online if it had big real life value? It has theorethical value, which you can not appreciate, and this is fine by me, I'm used to it. As I already said, I use prices which are available to me. If you have better database, I will appreaciate it if you send i to me
I'm more into real life trading value, but if you are more into theoretical value then that's fine by me. On a side note, this thread doesn't belong in the options forum, as it has nothing to do with options.
I'm also more into real life trading value, I just don't post my real life systems online MathAndLogic posted the other thread in this forum, so I decided that here is the proper place to post this thread, so that people can follow the discussion. And actually this thread has a lot to do with options, but I have to be very very theoretical to get to that and I'm worried that nobody will understand me.
I would be interested in how you feel this has to do with options. If you don't want to post it, I'd enjoy a private message.
This is basically a variation of Alexander Green's "Gone Fishin'" strategy: http://www.amazon.com/Gone-Fishin-P...=sr_1_1?ie=UTF8&s=books&qid=1270663164&sr=1-1 You buy several distinct asset classes and rebalance at the end of each year. Because you tend to sell more of whatever is overbought and buy more of whatever is undersold it may well do somewhat better than buy and hold over the long run. OTOH, because the decision of when to rebalance is very arbitrary I suspect that an active trading strategy should do better.
I'm starting to get your drift. I thought you were crazy at first, but I do find this interesting now. Thanks. I haven't read all your posts, but I think I will investigate it and think about it some more
As i said in another post, the profit only comes from the second order of taylor expansion. it does not worth the commission, let alone slippage.
I will surely write what it has to do with options, but I need more time, which I don't have these days. Here is something briefly: Are you acquainted with the Cox-Ross-Rubinstein option pricing model? Those guys claim to calculate "probability" of up movement and down movement, but in their view an up movement of x is equally likely as a down movement of x. So for example a price increase of 50% is equally likely as a decrease of 50%. This can be seen in their papers. And it is also in the schoolbooks, like the book of Hull for example. Do you think that they are right? If not, what do you think is the probability of an up movement of 50% before a down movement of 50%? We assume that the price follows a random walk and the risk-free rate is 0. I think I know the answer and I know how to calculate the probabilities, but I'm not sure whether the way I do it is the best possible, so I'd like to see other peoples' thoughts on the subject. Of course, knowing those probabilities can be helpful in trading options. But there are also other theoretical implications following from my system, for which I will write later.