BERND PAPE Asset Allocation, Multivariate Position Based Trading ...

ACTA WASAENSIA 11The traders in my model use therefore position-based rather than order-based tradingstrategies. That is, they choose portfolio holdings (rather than producing orders)proportional to expected investment profits. Trading orders are generated only whentarget portfolios change, as is expressed by the derivatives of target holdings withrespect to time. In chaper 5 I shall demonstrate that the neat duplications of real financialreturns’ statistical properties in Lux’ model extend to both the index and singleasset returns in a multivariate setup with two risky stocks and a riskless bond, whenasset allocation and security selection are modeled as separate decision processes andtraders use position-based rather than order-based strategies. Chapter 6 will conclude.