Related papers: Optimal Liquidity Provision
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…
We study the optimal placement problem of a stock trader who wishes to clear his/her inventory by a predetermined time horizon t, by using a limit order or a market order. For a diffusive market, we characterize the optimal limit order…
A limit order book provides information on available limit order prices and their volumes. Based on these quantities, we give an empirical result on the relationship between the bid-ask liquidity balance and trade sign and we show that…
In this article, we provide a flexible framework for optimal trading in an asset listed on different venues. We take into account the dependencies between the imbalance and spread of the venues, and allow for partial execution of limit…
This paper is split in three parts: first we use labelled trade data to exhibit how market participants accept or not transactions via limit orders as a function of liquidity imbalance; then we develop a theoretical stochastic control…
Problem definition: Traditional monopoly pricing assumes sellers have full information about consumer valuations. We consider monopoly pricing under limited information, where a seller only knows the mean, variance and support of the…
Market participants regularly send bid and ask quotes to exchange-operated limit order books. This creates an optimization challenge where their potential profit is determined by their quoted price and how often their orders are…
In this paper we explore optimal liquidation in a market populated by a number of heterogeneous market makers that have limited inventory-carrying and risk-bearing capacity. We derive a reduced form model for the dynamic of their aggregated…
We consider a seller who offers services to a buyer with multi-unit demand. Prior to the realization of demand, the buyer receives a noisy signal of their future demand, and the seller can design contracts based on the reported value of…
We consider a simple model for the evolution of a limit order book in which limit orders of unit size arrive according to independent Poisson processes. The frequencies of buy limit orders below a given price level, respectively sell limit…
This paper analyzes the strategic interactions between a profit-maximizing monopolist and a free, capacity-constrained public option. By restricting its own supply, the monopolist intentionally congests the public option and induces…
We consider a framework for solving optimal liquidation problems in limit order books. In particular, order arrivals are modeled as a point process whose intensity depends on the liquidation price. We set up a stochastic control problem in…
In order-driven markets, limit-order book (LOB) resiliency is an important microscopic indicator of market quality when the order book is hit by a liquidity shock and plays an essential role in the design of optimal submission strategies of…
We develop a behavioral model for liquidity and volatility based on empirical regularities in trading order flow in the London Stock Exchange. This can be viewed as a very simple agent based model in which all components of the model are…
A fundamental economic question is that of designing revenue-maximizing mechanisms in dynamic environments. This paper considers a simple yet compelling market model to tackle this question, where forward-looking buyers arrive at the market…
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…
We consider the problem of designing an expected-revenue maximizing mechanism for allocating multiple non-perishable goods of $k$ varieties to flexible consumers over $T$ time steps. In our model, a random number of goods of each variety…
In this research, we develop a trading strategy for the discrete-time optimal liquidation problem of large order trading with different market microstructures in an illiquid market. In this framework, the flow of orders can be viewed as a…
In the seminal paper on optimal execution of portfolio transactions, Almgren and Chriss (2001) define the optimal trading strategy to liquidate a fixed volume of a single security under price uncertainty. Yet there exist situations, such as…
We study the most famous example of a large financial market: the Arbitrage Pricing Model, where investors can trade in a one-period setting with countably many assets admitting a factor structure. We consider the problem of maximising…