Trading securities using trailing stops

Article Abstract:

Trailing stops are commonly used by financial markets traders to minimize their losses and protect their profits. A trailing stop is an order to sell the security at the market when its price falls to a certain level, which is always lower than the security's market price when the trader entered the stop order. To keep up with security price fluctuations, the stop price is adjusted such that it is always at a fixed distance from the ceiling price at which the security trades. A study is conducted that examines two models for the price process, both of which have a positive drift. These are the discrete time random walk and the continuous time Brownian motion. The distribution, mean and variance of the gain to the trader and the trade's duration when training stops are used and estimated for both models. The results are discussed.

Models, Securities, Brownian motion, Random walks (Mathematics), Random walk theory

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Simulating discounted costs

Article Abstract:

The estimation of discounted costs can be derived by simulation methodologies for systems displaying stochastic fluctuations in which conventional numerical methods are inefficient. Simulation methodologies utilizing algorithms for discounted cost problems provide a technique for reducing variance when modelling stochastic simulations, including non-Markov processes or infinite state space Markov chains.

Analysis, Stochastic analysis, Management research, Costs, Industrial, Industrial costs

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