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A Novel Approach for Option Trading Based on Kelly Criterion

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Intelligent Information and Database Systems (ACIIDS 2018)

Part of the book series: Lecture Notes in Computer Science ((LNAI,volume 10751))

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Abstract

An option trading model based on Kelly criterion is proposed in this work. Via longing and shorting options at different strike prices, various portfolio strategies which lock the losses and profits in advance can be formed; in other words, we hold a portfolio of options with a fixed profit and loss distribution. We design and use Kelly criterion applied to the options trading, in terms of calculating the optimal bidding fraction. In this paper we provide a model for developing an option trading system for finding the profitable option portfolio with optimal bidding fraction. This is a new approach for option trading with position management, and some future directions are provided.

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Acknowledgments

This work was supported by Ministry of Science and Technology, Taiwan, under Grant MOST 106-2221-E-027-145, 106-3114-E-001-006, 105-2221-E-001-009-MY3, 104-2221-E-001-008-MY3, and Academia Sinica Thematic Project under Grant AS-104-TP-A05.

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Authors and Affiliations

  1. Department of Information and Finance Management, National Taipei University of Technology, Taipei, Taiwan

    Mu-En Wu

  2. Research Center for Information Technology Innovation, Academia Sinica, Taipei, Taiwan

    Wei-Ho Chung

Authors
  1. Mu-En Wu
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  2. Wei-Ho Chung
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Corresponding author

Correspondence to Wei-Ho Chung .

Editor information

Editors and Affiliations

  1. Wrocław University of Science and Technology, Wrocław, Poland

    Ngoc Thanh Nguyen

  2. Quang Binh University, Dong Hoi City, Vietnam

    Duong Hung Hoang

  3. National University of Kaohsiung, Kaohsiung, Taiwan

    Tzung-Pei Hong

  4. Rutgers University, Piscataway, New Jersey, USA

    Hoang Pham

  5. Wrocław University of Science and Technology, Wrocław, Poland

    Bogdan Trawiński

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Wu, ME., Chung, WH. (2018). A Novel Approach for Option Trading Based on Kelly Criterion. In: Nguyen, N., Hoang, D., Hong, TP., Pham, H., Trawiński, B. (eds) Intelligent Information and Database Systems. ACIIDS 2018. Lecture Notes in Computer Science(), vol 10751. Springer, Cham. https://doi.org/10.1007/978-3-319-75417-8_49

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  • DOI: https://doi.org/10.1007/978-3-319-75417-8_49

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-319-75416-1

  • Online ISBN: 978-3-319-75417-8

  • eBook Packages: Computer ScienceComputer Science (R0)

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