Related papers: Mean Reversion Pays, but Costs
This paper studies the problem of trading futures with transaction costs when the underlying spot price is mean-reverting. Specifically, we model the spot dynamics by the Ornstein-Uhlenbeck (OU), Cox-Ingersoll-Ross (CIR), or exponential…
We study an optimization-based approach to con- struct a mean-reverting portfolio of assets. Our objectives are threefold: (1) design a portfolio that is well-represented by an Ornstein-Uhlenbeck process with parameters estimated by maximum…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…
When prices reflect all available information, they oscillate around an equilibrium level. This oscillation is the result of the temporary market impact caused by waves of buyers and sellers. This price behavior can be approximated through…
We derive scaling limits for integral functionals of It\^o processes with fast nonlinear mean-reversion speed. We show that in these limits, the fast mean-reverting process is "averaged out" by integrating against its invariant measure.…
In the context of advertising auctions, finding good reserve prices is a notoriously challenging learning problem. This is due to the heterogeneity of ad opportunity types and the non-convexity of the objective function. In this work, we…
Transaction costs appear in financial markets in more than one form. There are several results in the literature on small proportional transaction cost and not that many on fixed transaction cost. In the present work, we heuristically study…
For a game with positive expectation and some negative profit, a unique price exists, at which the optimal proportion of investment reaches its maximum. For a game with parallel translated profit, the ratio of this price to its expectation…
We empirically test predictability on asset price by using stock selection rules based on maximum drawdown and its consecutive recovery. In various equity markets, monthly momentum- and weekly contrarian-style portfolios constructed from…
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…
In this article, we introduce an algorithm called Backward Hedging, designed for hedging European and American options while considering transaction costs. The optimal strategy is determined by minimizing an appropriate loss function, which…
In this article we study a multi-asset version of the Merton investment and consumption problem with proportional transaction costs. In general it is difficult to make analytical progress towards a solution in such problems, but we…
Real-world applications of machine learning tools in high-stakes domains are often regulated to be fair, in the sense that the predicted target should satisfy some quantitative notion of parity with respect to a protected attribute.…
Positive feedback trading, which buys when prices rise and sells when prices fall, has long been criticized for being destabilizing as it moves prices away from the fundamentals. Motivated by the relationship between positive feedback…
We study optimal investment with multiple assets in the presence of small proportional transaction costs. Rather than computing an asymptotically optimal no-trade region, we optimize over suitable trading frequencies. We derive explicit…
Identical products being sold at different prices in different locations is a common phenomenon. Price differences might occur due to various reasons such as shipping costs, trade restrictions and price discrimination. To model such…
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
Investors trade shifting prices, portfolio values, and in turn their ability to borrow. Concentrated ownership, high price impact and low collateral requirements are propitious for arbitrage.
On-line portfolio selection has attracted increasing interests in machine learning and AI communities recently. Empirical evidences show that stock's high and low prices are temporary and stock price relatives are likely to follow the mean…
Market timing is an investment technique that tries to continuously switch investment into assets forecast to have better returns. What is the likelihood of having a successful market timing strategy? With an emphasis on modeling…