Trading and Market Microstructure
We study a single risky financial asset model subject to price impact and transaction cost over an infinite horizon. An investor needs to execute a long position in the asset affecting the price of the asset and possibly incurring in fixed…
This article provides a novel framework to evaluate limit order tactics that highlights expected fill price, adverse price selection cost, and opportunity cost. We formulate the problem of optimal execution of market orders with nonlinear…
We propose a design for schedule-based execution trading strategies based on uncertainty bands. This formulation: 1) simplifies strategy specification and implementation; 2) provides for flexible allocation among passive, opportunistic,…
Through the analysis of a dataset of ultra high frequency order book updates, we introduce a model which accommodates the empirical properties of the full order book together with the stylized facts of lower frequency financial data. To do…
This paper builds a model of high-frequency equity returns by separately modeling the dynamics of trade-time returns and trade arrivals. Our main contributions are threefold. First, we characterize the distributional behavior of…
We consider idealized financial markets in which price paths of the traded securities are cadlag functions, imposing mild restrictions on the allowed size of jumps. We prove the existence of quadratic variation for typical price paths,…
We study an optimal execution problem in the presence of market impact where the security price follows a geometric Ornstein-Uhlenbeck process, which implies the mean-reverting property, and show that the optimal strategy is a mixture of…
In this communication, some economic models given by functional mappings are addressed. These are models for random markets where agents trade by pairs and exchange their money in a random and conservative way. They display the exponential…
Using a proprietary dataset of meta-orders and prediction signals, and assuming a quasi-linear impact model, we deconvolve market impact from past correlated trades and a predictable return component to elicit the temporal dependence of the…
This paper presents an agent-based artificial cryptocurrency market in which heterogeneous agents buy or sell cryptocurrencies, in particular Bitcoins. In this market, there are two typologies of agents, Random Traders and Chartists, which…
In this paper, we study the dynamics of absolute return, trading volume and bid-ask spread after the trading halts using high-frequency data from the Shanghai Stock Exchange. We deal with all three types of trading halts, namely intraday…
An ability to postpone one's execution without penalty provides an important strategic advantage in high-frequency trading. To elucidate competition between traders one has to formulate to a quantitative theory of formation of the execution…
This paper investigates the effects of the "uptick rule" (a short selling regulation formally known as rule 10a-1) by means of a simple stock market model, based on the ARED (adaptive rational equilibrium dynamics) modeling framework, where…
We outline what we believe are the prerequisites and building-blocks for successfully devising trading models and other financial applications based on a complex systems perspective.
We build a multiassets heterogeneous agents model with fundamentalists and chartists, who make investment decisions by maximizing the constant relative risk aversion utility function. We verify that the model can reproduce the main stylized…
Optimal liquidation using VWAP strategies has been considered in the literature, though never in the presence of permanent market impact and only rarely with execution costs. Moreover, only VWAP strategies have been studied and the pricing…
We propose a new heavy-tailed distribution --- Gaussian-Chain (GC) distribution, which is inspirited by the hierarchical structures prevailing in social organizations. We determine the mean, variance and kurtosis of the Gaussian-Chain…
We solve a version of the optimal trade execution problem when the mid asset price follows a displaced diffusion. Optimal strategies in the adapted class under various risk criteria, namely value-at-risk, expected shortfall and a new…
For a market impact model, price manipulation and related notions play a role that is similar to the role of arbitrage in a derivatives pricing model. Here, we give a systematic investigation into such regularity issues when orders can be…
This study presents an agent-based computational cross-market model for Chinese equity market structure, which includes both stocks and CSI 300 index futures. In this model, we design several stocks and one index futures to simulate this…