Related papers: Optimal Trade Execution in Illiquid Markets
To execute a trade, participants in electronic equity markets may choose to submit limit orders or market orders across various exchanges where a stock is traded. This decision is influenced by the characteristics of the order flow and…
The paper considers the optimal control problem of inventory of a discrete product in regeneration scheme with a Poisson flow of customer requirements. In the system deferred demand is allowed, the volume of which is limited by a given…
We consider a two-way trading problem, where investors buy and sell a stock whose price moves within a certain range. Naturally they want to maximize their profit. Investors can perform up to $k$ trades, where each trade must involve the…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
The classical optimal trading problem is the closure of a position in an asset over a time interval; the trader maximizes an expected utility under the constraint that the position be fully closed by terminal time. Since the asset price is…
In spite of the growing consideration for optimal execution in the financial mathematics literature, numerical approximations of optimal trading curves are almost never discussed. In this article, we present a numerical method to…
Latency (i.e., time delay) in electronic markets affects the efficacy of liquidity taking strategies. During the time liquidity takers process information and send marketable limit orders (MLOs) to the exchange, the limit order book (LOB)…
We study a problem of optimal investment/consumption over an infinite horizon in a market consisting of a liquid and an illiquid asset. The liquid asset is observed and can be traded continuously, while the illiquid one can only be traded…
We introduce a prototype model in an attempt to capture some aspects of market dynamics simulating a trading mechanism. The model description starts with a discrete-space, continuous-time Markov process describing arrival and movement of…
We study a version of the classical Cayley-Moser optimal stopping problem, in which a seller must sell an asset by a given deadline, with the offers, which are independent random variables with a known distribution, arriving at random…
We consider an illiquid financial market where a risk averse investor has to liquidate a portfolio within a finite time horizon [0,T] and can trade continuously at a traditional exchange (the "primary venue") and in a dark pool. At the…
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,…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
In this work, we consider the optimal portfolio selection problem under hard constraints on trading volume amounts when the dynamics of the risky asset returns are governed by a discrete-time approximation of the Markov-modulated geometric…
We demonstrate an application of risk-sensitive reinforcement learning to optimizing execution in limit order book markets. We represent taking order execution decisions based on limit order book knowledge by a Markov Decision Process; and…
The volume weighted average price (VWAP) execution strategy is well known and widely used in practice. In this study, we explicitly introduce a trading volume process into the Almgren-Chriss model, which is a standard model for optimal…
We study the problem of dynamically trading a futures contract and its underlying asset under a stochastic basis model. The basis evolution is modeled by a stopped scaled Brownian bridge to account for non-convergence of the basis at…
Traders are often faced with large block orders in markets with limited liquidity and varying volatility. Executing the entire order at once usually incurs a large trading cost because of this limited liquidity. In order to minimize this…
We consider the Brownian market model and the problem of expected utility maximization of terminal wealth. We, specifically, examine the problem of maximizing the utility of terminal wealth under the presence of transaction costs of a…
We propose a limit order book (LOB) model with dynamics that account for both the impact of the most recent order and the shape of the LOB. We present an empirical analysis showing that the type of the last order significantly alters the…