Foreign exchange market modelling and an on-line portfolio selection algorithm

TL;DR

This paper develops a matrix-valued time series model for the foreign exchange market and introduces an online portfolio selection algorithm that predicts returns and proves its profitability and universality.

Contribution

It presents a novel matrix-valued model for FX markets and an online portfolio algorithm with proven profitability and universality, advancing quantitative trading strategies.

Findings

Proves the profitability of the proposed algorithm.

Demonstrates the universality of the portfolio strategy.

Develops a cross rate method for return prediction.

Abstract

In this paper, we introduce a matrix-valued time series model for foreign exchange market. We then formulate trading matrices, foreign exchange options and return options (matrices), as well as on-line portfolio strategies. Moreover, we attempt to predict returns of portfolios by developing a cross rate method. This leads us to construct an on-line portfolio selection algorithm for this model. At the end, we prove the profitability and the universality of our algorithm.