Related papers: Self-Financing Trading and the Ito-Doeblin Lemma
Bilateral trade is one of the most natural and important forms of economic interaction: A seller has a single, indivisible item for sale, and a buyer is potentially interested. The two parties typically have different, privately known…
We consider a financial market in which two securities are traded: a stock and an index. Their prices are assumed to satisfy the Black-Scholes model. Besides assuming that the index is a tradable security, we also assume that it is…
The paper discusses various practical consequences of treating economics and finance as an inherently dynamic and chaotic system. On the theoretical side this looks at the general applicability of the market-making pricing approach to…
We consider in this paper some structured financial products, known as reverse convertible notes, that resulted in substantial losses to certain buyers of these notes in recent years. We shall focus on specific reverse convertible notes…
In the paper a problem of risk measures on a discrete-time market model with transaction costs is studied. Strategy effectiveness and shortfall risk is introduced. This paper is a generalization of quantile hedging presented in [4].
Stock trading is one of the popular ways for financial management. However, the market and the environment of economy is unstable and usually not predictable. Furthermore, engaging in stock trading requires time and effort to analyze,…
We consider a pair of traders in a market where the information available to the second trader is a strict subset of the information available to the first trader. The traders make prices based on the information available concerning a…
Algorithmic trading relies on extracting meaningful signals from diverse financial data sources, including candlestick charts, order statistics on put and canceled orders, traded volume data, limit order books, and news flow. While deep…
Market making of options with different maturities and strikes is a challenging problem due to its highly dimensional nature. In this paper, we propose a novel approach that combines a stochastic policy and reinforcement learning-inspired…
This paper considers utility indifference valuation of derivatives under model uncertainty and trading constraints, where the utility is formulated as an additive stochastic differential utility of both intertemporal consumption and…
Market making is a fundamental trading problem in which an agent provides liquidity by continually offering to buy and sell a security. The problem is challenging due to inventory risk, the risk of accumulating an unfavourable position and…
We consider a trading marketplace that is populated by traders with diverse trading strategies and objectives. The marketplace allows the suppliers to list their goods and facilitates matching between buyers and sellers. In return, such a…
Market makers continuously set bid and ask quotes for the stocks they have under consideration. Hence they face a complex optimization problem in which their return, based on the bid-ask spread they quote and the frequency at which they…
After the U.S market earned strong returns in 2003, day trading made a comeback and once again became a popular trading method among traders. Although there is no comprehensive empirical evidence available to answer the question do…
This paper outlines, and through stylized examples evaluates a novel and highly effective computational technique in quantitative finance. Empirical Risk Minimization (ERM) and neural networks are key to this approach. Powerful open source…
We provide simple models for the utility function (or psychology) of an actor trading a multitude of goods for money. In this framework, money has no intrinsic consumption value, but is required as a medium of exchange. A collection of such…
Traders constantly consider the price impact associated with changing their positions. This paper seeks to understand how price impact emerges from the quoting strategies of market makers. To this end, market making is modeled as a dynamic…
``When in a difficult situation, it is sometimes better to give up and start all over again''. While this empirical truth has been regularly observed in a wide range of circumstances, quantifying the effectiveness of such a heuristic…
In a seminal paper, McAfee (1992) presented the first dominant strategy truthful mechanism for double auction. His mechanism attains nearly optimal gain-from-trade when the market is sufficiently large. However, his mechanism may leave…
There is a widespread recent interest in using ideas from statistical physics to model certain types of problems in economics and finance. The main idea is to derive the macroscopic behavior of the market from the random local interactions…