Related papers: Optimal Trading with Alpha Predictors
We revisit optimal execution of an active portfolio in the presence of slippage (aka linear, proportional, or absolute-value) costs. Market efficiency implies a close balance between active alphas and trading costs, so even small changes to…
We study the optimal order placement strategy with the presence of a liquidity cost. In this problem, a stock trader wishes to clear her large inventory by a predetermined time horizon $T$. A trader uses both limit and market orders, and a…
We study the optimal execution of market and limit orders with permanent and temporary price impacts as well as uncertainty in the filling of limit orders. Our continuous-time model incorporates a trade speed limiter and a trader director…
We consider the multi-period portfolio optimization problem with a single asset that can be held long or short. Due to the presence of transaction costs, maximizing the immediate reward at each period may prove detrimental, as frequent…
Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem…
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…
Alpha signals for statistical arbitrage strategies are often driven by latent factors. This paper analyses how to optimally trade with latent factors that cause prices to jump and diffuse. Moreover, we account for the effect of the trader's…
We analyze an optimal trade execution problem in a financial market with stochastic liquidity. To this end we set up a limit order book model in which both order book depth and resilience evolve randomly in time. Trading is allowed in both…
We consider the problem of the optimal trading strategy in the presence of linear costs, and with a strict cap on the allowed position in the market. Using Bellman's backward recursion method, we show that the optimal strategy is to switch…
We study the optimal portfolio liquidation problem over a finite horizon in a limit order book with bid-ask spread and temporary market price impact penalizing speedy execution trades. We use a continuous-time modeling framework, but in…
To execute a trade, participants in electronic equity markets may choose to submit limit orders or market orders across various exchanges where a stock is traded. This decision is influenced by the characteristics of the order flow and…
A hypothetical risk-neutral agent who trades to maximize the expected profit of the next trade will approximately exhibit long-term optimal behavior as long as this agent uses the vector $p = \nabla V (t, x)$ as effective microstructure…
In financial markets, liquidity is not constant over time but exhibits strong seasonal patterns. In this article we consider a limit order book model that allows for time-dependent, deterministic depth and resilience of the book and…
We consider an optimal trading problem under a market impact model with endogenous market resistance generated by a sophisticated trader who (partially) detects metaorders and trades against them to exploit price overreactions induced by…
We formulate and solve an optimal trading problem with alpha signals, where transactions induce a nonlinear transient price impact described by a general propagator model, including power-law decay. Using a variational approach, we…
In these notes we discuss investment allocation to multiple alpha streams traded on the same execution platform, including when trades are crossed internally resulting in turnover reduction. We discuss approaches to alpha weight…
In this paper, we introduce a novel reinforcement learning framework for optimal trade execution in a limit order book. We formulate the trade execution problem as a dynamic allocation task whose objective is the optimal placement of market…
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…
We consider an optimal investment problem to maximize expected utility of the terminal wealth, in an illiquid market with search frictions and transaction costs. In the market model, an investor's attempt of transaction is successful only…
We give a detailed characterization of optimal trades under budget constraints in a prediction market with a cost-function-based automated market maker. We study how the budget constraints of individual traders affect their ability to…