Related papers: Mean Reversion Pays, but Costs
Trading styles can be classified into either trend-following or mean-reverting. If the net trading style is trend-following the traded asset is more likely to move in the same direction it moved previously (the opposite is true if the net…
We study the range of prices at which a rational agent should contemplate transacting a financial contract outside a given securities market. Trading is subject to nonproportional transaction costs and portfolio constraints and full…
In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason…
This article examines arbitrage investment in a mispriced asset when the mispricing follows the Ornstein-Uhlenbeck process and a credit-constrained investor maximizes a generalization of the Kelly criterion. The optimal differentiable and…
Bilateral trade models the task of intermediating between two strategic agents, a seller and a buyer, willing to trade a good for which they hold private valuations. We study this problem from the perspective of a broker, in a regret…
A trading system is said to be {robust} if it generates a robust return regardless of market direction. To this end, a consistently positive expected trading gain is often used as a robustness metric for a trading system. In this paper, we…
Given a geometric Brownian motion wealth process, a log-Normal lower bound is constructed for the returns of a regular investing schedule. The distribution parameters of this bound are computed recursively. For dollar cost averaging (equal…
We extend the fundamental theorem of asset pricing to a model where the risky stock is subject to proportional transaction costs in the form of bid-ask spreads and the bank account has different interest rates for borrowing and lending. We…
Finding Bertram's optimal trading strategy for a pair of cointegrated assets following the Ornstein--Uhlenbeck price difference process can be formulated as an unconstrained convex optimization problem for maximization of expected profit…
An investor with constant relative risk aversion trades a safe and several risky assets with constant investment opportunities. For a small fixed transaction cost, levied on each trade regardless of its size, we explicitly determine the…
Given the return series for a set of instruments, a \emph{trading strategy} is a switching function that transfers wealth from one instrument to another at specified times. We present efficient algorithms for constructing (ex-post) trading…
We study the power of price discrimination via an intermediary in bilateral trade, when there is a revenue-maximizing seller selling an item to a buyer with a private value drawn from a prior. Between the seller and the buyer, there is an…
Explicit robust hedging strategies for convex or concave payoffs under a continuous semimartingale model with uncertainty and small transaction costs are constructed. In an asymptotic sense, the upper and lower bounds of the cumulative…
We propose a constructive framework for the super-hedging problem of a European contingent claim under proportional transaction costs in discrete time. Our main contribution is an explicit recursive scheme that computes both the…
The steady-state turnover of a trading strategy is of clear interest to practitioners and portfolio managers, as is the steady-state Sharpe ratio. In this article, we show that in a convenient Gaussian process model, the steady-state…
In this paper, we study the behavior of information ratio (IR) as determined by the fundamental law of active investment management. We extend the classic relationship between IR and its two determinants (i.e., information coefficient and…
The standard approach for constructing a Mean-Variance portfolio involves estimating parameters for the model using collected samples. However, since the distribution of future data may not resemble that of the training set, the…
For a game with positive profit, the optimal proportion of investment required to continue investing without borrowing is uniquely determined by an integral equation for each price. For a game with parallel translated profit, the ratio of…
We consider a multivariate financial market with transaction costs and study the problem of finding the minimal initial capital needed to hedge, without risk, European-type contingent claims. The model is similar to the one considered in…
In online bilateral trade, a platform posts prices to incoming pairs of buyers and sellers that have private valuations for a certain good. If the price is lower than the buyers' valuation and higher than the sellers' valuation, then a…