Optimizing Quantitative Strategies in Emerging Markets:A Simplified differential Equation Approach

• Muchen Li

  Author

Asset prices in emerging markets have the features of high return potential rate and complex uncertainty. This essay detailed analyze and compare the various of methods for higher requirements of quantitative investment strategies. Differential equation modeling is take as the core perspective, then systematically explores the application logic of the two differential equations(ODE and SDE) with their advantages and limitations in emerging markets, then constructs a combined simplified model that more suitable for the emerging markets. Firstly, the study shows the application context of differential equations in the financial field and clarify the feature of complementary of the two types equations in capturing deterministic market trends and random fluctuations. Secondly, elaborating the construction of model steps (ODE and SDE) and their practical value in scenarios such as allocation of resource and long-term planning in emerging markets. The empirical verification covers 12 emerging markets in four regions which are Southeast Asia, Africa, Latin America and Eastern Europe. The results show that, compared with the single ODE or standard SDE model, the combined model reduces prediction errors and shortens calculation time in scenarios such as stock price prediction, digital financial user growth measurement and commodity futures risk assessment, it can effectively adapt to the realistic relatively hard situations in emerging markets such as data scarcity and limited computational resources. The combined simplified model constructed in this paper provides as a low-threshold and high-efficiency tool for optimizing quantitative investment strategies in cross-regional emerging markets, and expands the application boundary of combined differential equation modeling in the financial field.

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