Related papers: Empirical Limitations on High Frequency Trading Pr…
The interactions between a large population of high-frequency traders (HFTs) and a large trader (LT) who executes a certain amount of assets at discrete time points are studied. HFTs are faster in the sense that they trade continuously and…
This article considers the pricing and hedging of a call option when liquidity matters, that is, either for a large nominal or for an illiquid underlying asset. In practice, as opposed to the classical assumptions of a price-taking agent in…
Since they were authorized by the U.S. Security and Exchange Commission in 1998, electronic exchanges have boomed, and by 2010 high frequency trading accounted for over 70% of equity trades in the US. Such markets are thought to increase…
We propose a framework for studying optimal market making policies in a limit order book (LOB). The bid-ask spread of the LOB is modelled by a Markov chain with finite values, multiple of the tick size, and subordinated by the Poisson…
We analyze a tractable model of a limit order book on short time scales, where the dynamics are driven by stochastic fluctuations between supply and demand. We establish the existence of a limiting distribution for the highest bid, and for…
We propose that predictability is a prerequisite for profitability on financial markets. We look at ways to measure predictability of price changes using information theoretic approach and employ them on all historical data available for…
In this paper we investigate a new class of growth rate maximization problems based on impulse control strategies such that the average number of trades per time unit does not exceed a fixed level. Moreover, we include proportional…
This paper studies the influences of a high-frequency trader (HFT) on a large trader whose future trading is predicted by the former. We conclude that HFT always front-runs and the large trader is benefited when: (1) there is sufficient…
We present a novel approach to describing the microstructure of high frequency trading using two key elements. First we introduce a new notion of informed trader which we starkly contrast to current informed trader models. We describe the…
Although there is a wide use of technical trading rules in stock markets, the profitability of them still remains controversial. This paper first presents and proves the upper bound of cumulative return, and then introduces many of…
Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem…
We propose a general approximation method for determining optimal trading strategies in markets with proportional transaction costs, with a polynomial approximation of the residual value function. The method is exemplified by several…
High-speed computerized trading, often called "high-frequency trading" (HFT), has increased dramatically in financial markets over the last decade. In the US and Europe, it now accounts for nearly one-half of all trades. Although evidence…
We study the behavior of simple models for financial markets with widely spread frequency either in the trading activity of agents or in the occurrence of basic events. The generic picture of a phase transition between information efficient…
We build an agent-based model to study how the interplay between low- and high-frequency trading affects asset price dynamics. Our main goal is to investigate whether high-frequency trading exacerbates market volatility and generates flash…
An investor with constant absolute risk aversion trades a risky asset with general It\^o-dynamics, in the presence of small proportional transaction costs. In this setting, we formally derive a leading-order optimal trading policy and the…
We utilize a chartist-fundamentalist model to examine the limits of informationally efficient stock markets. In our model, chartists are permanently active in the stock market, while fundamentalists trade only when their…
We use the statistical properties of Shannon entropy estimator and Kullback-Leibler divergence to study the predictability of ultra-high frequency financial data. We develop a statistical test for the predictability of a sequence based on…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio…
High-frequency trading (HFT) represents a pivotal and intensely competitive domain within the financial markets. The velocity and accuracy of data processing exert a direct influence on profitability, underscoring the significance of this…