Related papers: Pairs Trading under Drift Uncertainty and Risk Pen…
Efficient markets are characterised by profit-driven participants continuously refining their positions towards the latest insights. Margins for profit generation are generally small, shaping a difficult landscape for automated trading…
We solve an expected utility-maximization problem with a Value-at-risk constraint on the terminal portfolio value in an incomplete financial market due to stochastic volatility. To derive the optimal investment strategy, we use the dynamic…
We analyze a continuous-time optimal trade execution problem in multiple assets where the price impact and the resilience can be matrix-valued stochastic processes that incorporate cross-impact effects. In addition, we allow for stochastic…
We study the Merton problem of optimal consumption-investment for the case of two investors sharing a final wealth. The typical example would be a husband and wife sharing a portfolio looking to optimize the expected utility of consumption…
We study the problem of optimally managing an inventory with unknown demand trend. Our formulation leads to a stochastic control problem under partial observation, in which a Brownian motion with non-observable drift can be singularly…
We study optimal investment strategies that maximize expected utility from consumption and terminal wealth in a pure-jump asset price model with Markov-modulated (regime switching) jump-size distributions. We give sufficient conditions for…
In this paper, we examine a modified version of de Finetti's optimal dividend problem, incorporating fixed transaction costs and altering the surplus process by introducing two-valued drift and two-valued volatility coefficients. This…
In this paper we propose a novel application of Gaussian processes (GPs) to financial asset allocation. Our approach is deeply rooted in Stochastic Portfolio Theory (SPT), a stochastic analysis framework introduced by Robert Fernholz that…
We present an optimal investment theorem for a currency exchange model with random and possibly discontinuous proportional transaction costs. The investor's preferences are represented by a multivariate utility function, allowing for…
We study the problem of dynamically trading a futures contract and its underlying asset under a stochastic basis model. The basis evolution is modeled by a stopped scaled Brownian bridge to account for non-convergence of the basis at…
In this paper, we consider the portfolio optimization problem in a financial market under a general utility function. Empirical results suggest that if a significant market fluctuation occurs, invested wealth tends to have a notable change…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
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 consider the task of filtering a dynamic parameter evolving as a diffusion process, given data collected at discrete times from a likelihood which is conjugate to the marginal law of the diffusion, when a generic dual process on a…
This paper solves the dynamic portfolio choice problem. Using an explicit solution with a power utility, we construct a bridge between a continuous and discrete VAR model to assess portfolio sensitivities. We find, from a well analyzed…
We study the optimal transport problem for pairs of stationary finite-state Markov chains, with an emphasis on the computation of optimal transition couplings. Transition couplings are a constrained family of transport plans that capture…
We propose a distributionally robust formulation of the traditional risk parity portfolio optimization problem. Distributional robustness is introduced by targeting the discrete probabilities attached to each observation used during…
We study a risk-sharing economy where an arbitrary number of heterogenous agents trades an arbitrary number of risky assets subject to quadratic transaction costs. For linear state dynamics, the forward-backward stochastic differential…
We develop the optimal trading strategy for a foreign exchange (FX) broker who must liquidate a large position in an illiquid currency pair. To maximize revenues, the broker considers trading in a currency triplet which consists of the…
We consider the problem of maximizing expected utility for a power investor who can allocate his wealth in a stock, a defaultable security, and a money market account. The dynamics of these security prices are governed by geometric Brownian…