Related papers: Mean Reversion Pays, but Costs
We derive a fundamental trade-off between standard and adversarial risk in a rather general situation that formalizes the following simple intuition: "If no (nearly) optimal predictor is smooth, adversarial robustness comes at the cost of…
It is shown that the the popular least squares method of option pricing converges even under very general assumptions. This substantially increases the freedom of creating different implementations of the method, with varying levels of…
A corporate bond trader in a typical sell side institution such as a bank provides liquidity to the market participants by buying/selling securities and maintaining an inventory. Upon receiving a request for a buy/sell price quote (RFQ),…
This paper addresses a novel \emph{cost-sensitive} distributionally robust log-optimal portfolio problem, where the investor faces \emph{ambiguous} return distributions, and a general convex transaction cost model is incorporated. The…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
Motivated by the recent popularity of machine learning training services, we introduce a contract design problem in which a provider sells a service that results in an outcome of uncertain quality for the buyer. The seller has a set of…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
We study risk-sharing equilibria with general convex costs on the agents' trading rates. For an infinite-horizon model with linear state dynamics and exogenous volatilities, we prove that the equilibrium returns mean-revert around their…
The paper examines how reinsurance can be used to strike a balance between expected profit and VaR/CVaR risk. Conditions making truncated stop loss contracts optimal are derived, and it is argued that those are usually satisfied in…
We use standard physics techniques to model trading and price formation in a market under the assumption that order arrival and cancellations are Poisson random processes. This model makes testable predictions for the most basic properties…
We consider a sequential decision-making setting where, at every round $t$, a market maker posts a bid price $B_t$ and an ask price $A_t$ to an incoming trader (the taker) with a private valuation for one unit of some asset. If the trader's…
We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small…
The theory of optimal trading under proportional transaction costs has been considered from a variety of perspectives. In this paper, we show that all the results can be interpreted using a universal law, illustrating the results in trading…
This work discusses the benefits of constrained portfolio turnover strategies for small to medium-sized portfolios. We propose a dynamic multi-period model that aims to minimize transaction costs and maximize terminal wealth levels whilst…
A prevalent market structure in the Internet economy consists of buyers and sellers connected by a platform (such as Amazon or eBay) that acts as an intermediary and keeps a share of the revenue of each transaction. While the optimal…
This paper studies the optimal VIX futures trading problems under a regime-switching model. We consider the VIX as mean reversion dynamics with dependence on the regime that switches among a finite number of states. For the trading…
The existing literature on optimal auctions focuses on optimizing the expected revenue of the seller, and is appropriate for risk-neutral sellers. In this paper, we identify good mechanisms for risk-averse sellers. As is standard in the…
A seller offers an asset in a decentralised market. Buyers have private signals about their common value. I study whether the market becomes allocatively more efficient with (i) more buyers, (ii) better-informed buyers. Both increase the…
In a recent publication, using a simple two-period model, which is already capable to capture essential non-convex multiperiod bids, Richstein et al. have shown that in the case of optimal bidding, multi-part bidding always ensures a higher…
The advances and development of various machine learning techniques has lead to practical solutions in various areas of science, engineering, medicine and finance. The great choice of algorithms, their implementations and libraries has…