Related papers: Optimal Trading with a Trailing Stop
Solving optimal control problems to determine a stabilizing controller involves a significant computational effort. Time-varying optimal control provides a remedy by designing a tracking system, given as an ordinary differential equation,…
We study a version of the classical Cayley-Moser optimal stopping problem, in which a seller must sell an asset by a given deadline, with the offers, which are independent random variables with a known distribution, arriving at random…
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 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…
We consider the problem of dynamic buying and selling of shares from a collection of $N$ stocks with random price fluctuations. To limit investment risk, we place an upper bound on the total number of shares kept at any time. Assuming that…
This paper is concerned with an optimal strategy for simultaneously trading a pair of stocks. The idea of pairs trading is to monitor their price movements and compare their relative strength over time. A pairs trade is triggered by the…
It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…
In this work we study the optimal execution problem with multiplicative price impact in algorithm trading, when an agent holds an initial position of shares of a financial asset. The inter-selling-decision times are modelled by the arrival…
In this work, we study a dynamic portfolio optimization problem related to pairs trading, which is an investment strategy that matches a long position in one security with a short position in another security with similar characteristics.…
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 present a solution to an optimal stopping problem for a process with a wide-class of novel dynamics. The dynamics model the support/resistance line concept from financial technical analysis.
We study the problem of optimal trading using general alpha predictors with linear costs and temporary impact. We do this within the framework of stochastic optimization with finite horizon using both limit and market orders. Consistently…
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 develop methods to solve general optimal stopping problems with opportunities to stop that arrive randomly. Such problems occur naturally in applications with market frictions. Pivotal to our approach is that our methods operate on…
We investigate the impact of capital gains taxes on optimal investment decisions in a quite simple model. Namely, we consider a risk neutral investor who owns one risky stock from which she assumes that it has a lower expected return than…
In this paper we consider a method of solving optimal stopping problems in discrete and continuous time based on their dual representation. A novel and generic simulation-based optimization algorithm not involving nested simulations is…
We study a problem when a solution to optimal stopping problem for one-dimensional diffusion will generate by threshold strategy. Namely, we give necessary and sufficient conditions under which an optimal stopping time can be specified as…
This paper presents a simple method for a posteriori (historical) multi-variate multi-stage optimal trading under transaction costs and a diversification constraint. Starting from a given amount of money in some currency, we analyze the…
This paper studies the problem of determining the optimal cut-off for pairs trading rules. We consider two correlated assets whose spread is modelled by a mean-reverting process with stochastic volatility, and the optimal pair trading rule…
In this paper, we employ the Heston stochastic volatility model to describe the stock's volatility and apply the model to derive and analyze the optimal trading strategies for dealers in a security market. We also extend our study to option…