Related papers: Mean Reversion Pays, but Costs

We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non…

When pricing options, there may be different views on the instantaneous mean return of the underlying price process. According to Black (1972), where there exist heterogeneous views on the instantaneous mean return, this will result in…

This paper studies a large number of homogeneous Markov decision processes where the transition probabilities and costs are coupled in the empirical distribution of states (also called mean-field). The state of each process is not known to…

We study the problem of the optimal execution of a large trade in the presence of nonlinear transient impact. We propose an approach based on homotopy analysis, whereby a well behaved initial strategy is continuously deformed to lower the…

Trailing stop is a popular stop-loss trading strategy by which the investor will sell the asset once its price experiences a pre-specified percentage drawdown. In this paper, we study the problem of timing buy and then sell an asset subject…

Considering that a trader or a trading algorithm interacting with markets during continuous auctions can be modeled by an iterating procedure adjusting the price at which he posts orders at a given rhythm, this paper proposes a procedure…

In this work we study a finite horizon optimal liquidation problem with multiplicative price impact in algorithmic trading, using market orders. We analyze the case when an agent is trading on a market with two financial assets, whose…

Mean-Field is an efficient way to approximate a posterior distribution in complex graphical models and constitutes the most popular class of Bayesian variational approximation methods. In most applications, the mean field distribution…

In a market with a rough or Markovian mean-reverting stochastic volatility there is no perfect hedge. Here it is shown how various delta-type hedging strategies perform and can be evaluated in such markets in the case of European options. A…

We introduce a new general framework for constructing the best trading strategy for a given historical indicator. We construct the unique trading strategy with the highest expected return. This optimal strategy may be implemented directly,…

A seller offers a buyer a schedule of transfers and associated product qualities. After observing this schedule, the buyer chooses a flexible costly signal about his type. We show it is without loss to focus on a class of mechanisms that…

This paper studies a continuous-time market where an agent, having specified an investment horizon and a targeted terminal mean return, seeks to minimize the variance of the return. The optimal portfolio of such a problem is called…

In portfolio optimization problems, the minimum expected investment risk is not always smaller than the expected minimal investment risk. That is, using a well-known approach from operations research, it is possible to derive a strategy…

In this article we consider the Merton problem in a market with a single risky asset and transaction costs. We give a complete solution of the problem up to the solution of a free-boundary problem for a first-order differential equation,…

In this paper we consider a trading strategy, which consists in buying or selling a financial instrument when the smoothing, non-causal FIR (Final Impulse Response) filter output attains a local minimum or maximum, respectively. Upon tis…

Before purchase, a buyer of an experience good learns about the product's fit using various information sources, including some of which the seller may be unaware of. The buyer, however, can conclusively learn the fit only after purchasing…

We consider a continuous-time market with proportional transaction costs. Under appropriate assumptions we prove the existence of optimal strategies for investors who maximize their worst-case utility over a class of possible models. We…

In recent decades, companies have frequently adopted share repurchase programs to return capital to shareholders or for other strategic purposes, instructing investment banks to rapidly buy back shares on their behalf. When the executing…

This paper studies the optimal refund mechanism when an uninformed buyer can privately acquire information about his valuation of a product over time. We consider a class of refund mechanisms based on stochastic return policies: if the…

Trading large volumes of a financial asset in order driven markets requires the use of algorithmic execution dividing the volume in many transactions in order to minimize costs due to market impact. A proper design of an optimal execution…