Related papers: Viable Insider Markets
In this work, we consider the optimal portfolio selection problem under hard constraints on trading volume amounts when the dynamics of the risky asset returns are governed by a discrete-time approximation of the Markov-modulated geometric…
The paper predicts an Efficient Market Property for the equity market, where stocks, when denominated in units of the growth optimal portfolio (GP), have zero instantaneous expected returns. Well-diversified equity portfolios are shown to…
We investigate how and when to diversify capital over assets, i.e., the portfolio selection problem, from a signal processing perspective. To this end, we first construct portfolios that achieve the optimal expected growth in i.i.d.…
This paper investigates the optimal selection of portfolios for power utility maximizing investors in a financial market where stock returns depend on a hidden Gaussian mean reverting drift process. Information on the drift is obtained from…
A Markovian modulation captures the trend in the market and influences the market coefficients accordingly. The different scenarios presented by the market are modeled as the distinct states of a discrete-time Markov chain. In our paper, we…
We give a general formulation of the utility maximization problem under nondominated model uncertainty in discrete time and show that an optimal portfolio exists for any utility function that is bounded from above. In the unbounded case,…
In this paper we consider a modification of the classical Merton portfolio optimization problem. Namely, an investor can trade in financial asset and consume his capital. He is additionally endowed with a one unit of an indivisible asset…
This paper presents an optimal strategy for portfolio liquidation under discrete time conditions. We assume that N risky assets held will be liquidated according to the same time interval and order quantity, and the basic price processes of…
The folk result in Kyle-Back models states that the value function of the insider remains unchanged when her admissible strategies are restricted to absolutely continuous ones. In this paper we show that, for a large class of pricing rules…
We consider an illiquid financial market where a risk averse investor has to liquidate a portfolio within a finite time horizon [0,T] and can trade continuously at a traditional exchange (the "primary venue") and in a dark pool. At the…
This paper studies the problem of maximizing the expected utility of terminal wealth for a financial agent with an unbounded random endowment, and with a utility function which supports both positive and negative wealth. We prove the…
A new approach to obtaining market--directional information, based on a non-stationary solution to the dynamic equation "future price tends to the value that maximizes the number of shares traded per unit time" [1] is presented. In our…
We study the optimal investment problem for a continuous time incomplete market model such that the risk-free rate, the appreciation rates and the volatility of the stocks are all random; they are assumed to be independent from the driving…
We study optimal liquidation strategies under partial information for a single asset within a finite time horizon. We propose a model tailored for high-frequency trading, capturing price formation driven solely by order flow through…
In this paper, we study an irreversible investment problem under Knightian uncertainty. In a general framework, in which Knightian uncertainty is modeled through a set of multiple priors, we prove existence and uniqueness of the optimal…
This note studies the behavior of an index I_t which is assumed to be a tradable security, to satisfy the BSM model dI_t/I_t = \mu dt + \sigma dW_t, and to be efficient in the following sense: we do not expect a prespecified trading…
A continuous-time consumption-investment model with constraint is considered for a small investor whose decisions are the consumption rate and the allocation of wealth to a risk-free and a risky asset with logarithmic Brownian motion…
In this paper, we propose a minimal model beyond geometric Brownian motion that aims to describe price actions with market inefficiency. From simple financial theory considerations, we arrive at a simple two-variable hidden Markovian time…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
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…