Related papers: Stop-loss and Leverage in optimal Statistical Arbi…
How to hedge factor risks without knowing the identities of the factors? We first prove a general theoretical result: even if the exact set of factors cannot be identified, any risky asset can use some portfolio of similar peer assets to…
We introduce a trade strategy representation theorem for performance measurement and portable alpha in high frequency trading, by embedding a robust trading algorithm that describe portfolio manager market timing behavior, in a canonical…
This paper studies four trading algorithms of a professional trader at a multilateral trading facility, observing a realistic two-sided limit order book whose dynamics are driven by the order book events. The identity of the trader can be…
Barrier derivatives depend on extrema and first-passage events and are therefore highly sensitive to volatility dynamics -- especially to the instantaneous return-volatility correlation $\rho$, often called ``leverage''. This sensitivity…
We consider learning a trading agent acting on behalf of the treasury of a firm earning revenue in a foreign currency (FC) and incurring expenses in the home currency (HC). The goal of the agent is to maximize the expected HC at the end of…
Due to the increasing popularity of futures trading among financial market participants, the risk management of these instruments is crucial. In this paper, we introduce a model for estimating the ideal time for leaving a trading position…
We consider an agent who needs to buy (or sell) a relatively small amount of asset over some fixed short time interval. We work at the highest frequency meaning that we wish to find the optimal tactic to execute our quantity using limit…
We consider the hedging error of a derivative due to discrete trading in the presence of a drift in the dynamics of the underlying asset. We suppose that the trader wishes to find rebalancing times for the hedging portfolio which enable him…
We design a prediction market to recover a complete and fully general probability distribution over a random variable. Traders buy and sell interval securities that pay \$1 if the outcome falls into an interval and \$0 otherwise. Our market…
The aim of this paper is the analysis and selection of stock trading systems that combine different models with data of different nature, such as financial and microeconomic information. Specifically, based on previous work by the authors…
In Statistical Arbitrage (StatArb), classical mean reversion trading strategies typically hinge on asset-pricing or PCA based models to identify the mean of a synthetic asset. Once such a (linear) model is identified, a separate mean…
Consider an American option that pays G(X^*_t) when exercised at time t, where G is a positive increasing function, X^*_t := \sup_{s\le t}X_s, and X_s is the price of the underlying security at time s. Assuming zero interest rates, we show…
Based on a criterium of mathematical simplicity and consistency with empirical market data, a stochastic volatility model has been obtained with the volatility process driven by fractional noise. Depending on whether the stochasticity…
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 a discrete-time market, we study model-independent superhedging, while the semi-static superhedging portfolio consists of {\it three} parts: static positions in liquidly traded vanilla calls, static positions in other tradable, yet…
We propose a price impact model where changes in prices are purely driven by the order flow in the market. The stochastic price impact of market orders and the arrival rates of limit and market orders are functions of the market liquidity…
We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the…
This paper presents hedging strategies for European and exotic options in a Levy market. By applying Taylor's Theorem, dynamic hedging portfolios are con- structed under different market assumptions, such as the existence of power jump…
The aim of this short note is to establish a limit theorem for the optimal trading strategies in the setup of the utility maximization problem with proportional transaction costs. This limit theorem resolves the open question from [4]. The…
Financial market forecasting remains a formidable challenge despite the surge in computational capabilities and machine learning advancements. While numerous studies have underscored the precision of computer-generated market predictions,…