Related papers: Market Impact Paradoxes
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…
We study the relationship between price spread, volatility and trading volume. We find that spread forms as a result of interplay between order liquidity and order impact. When trading volume is small adding more liquidity helps improve…
We propose a theory of the market impact of metaorders based on a coarse-grained approach where the microscopic details of supply and demand is replaced by a single parameter $\rho \in [0,+\infty]$ shaping the supply-demand equilibrium and…
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…
We consider the problem of merchant storage participating in the regulation market with state-of-charge (SoC) dependent bids. Because storage can simultaneously provide regulation up and regulation down capacities, the market-clearing…
This paper studies the monotone mean-variance (MMV) problem and the classical mean-variance (MV) problem with convex cone trading constraints in a market with random coefficients. We provide semiclosed optimal strategies and optimal values…
This work extends and complements our previous theoretical paper on the subtle interplay between impact, order flow and volatility. In the present paper, we generate synthetic market data following the specification of that paper and show…
Constant and symmetric price impact functions, most commonly used in agent-based market modelling, are shown to give rise to paradoxical and inconsistent outcomes in the simplest case of arbitrage exploitation when open-hold-close actions…
This paper studies convex duality in optimal investment and contingent claim valuation in markets where traded assets may be subject to nonlinear trading costs and portfolio constraints. Under fairly general conditions, the dual expressions…
Bank behaviour is important for pricing XVA because it links different counterparties and thus breaks the usual XVA pricing assumption of counterparty independence. Consider a typical case of a bank hedging a client trade via a CCP. On…
Trading volume movement prediction is the key in a variety of financial applications. Despite its importance, there is few research on this topic because of its requirement for comprehensive understanding of information from different…
We attempt to reconcile Gabaix and Koijen's (GK) recent Inelastic Market Hypothesis (IMH) with the order-driven view of markets that emerged within the microstructure literature in the past 20 years. We review the most salient empirical…
A dynamic herding model with interactions of trading volumes is introduced. At time $t$, an agent trades with a probability, which depends on the ratio of the total trading volume at time $t-1$ to its own trading volume at its last trade.…
This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…
Wholesale market participation of storage with state-of-charge (SoC) dependent bids results in a non-convex cost in a multi-interval economic dispatch, which requires a mixed-integer linear program in the market clearing. We show that the…
We consider a square-integrable semimartingale and investigate the convex order relations between its discrete, continuous and predictable quadratic variation. As the main results, we show that if the semimartingale has conditionally…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
This paper studies a portfolio optimization problem in a discrete-time Markovian model of a financial market, in which asset price dynamics depend on an external process of economic factors. There are transaction costs with a structure that…
Silkswap is an automated market maker model designed for efficient stablecoin trading with minimal price impact. The original purpose of Silkswap is to facilitate the trading of fiat-pegged stablecoins with the stablecoin Silk, but it can…
We show that under mild assumptions, the total value of information to informed traders in the market can be measured by the covariance between price changes and order flow. This covariance captures noise trader losses, which equal informed…