Related papers: A closed-form solution for optimal mean-reverting …
We extend the theory of asymmetric information in mispricing models for stocks following geometric Brownian motion to constant relative risk averse investors. Mispricing follows a continuous mean--reverting Ornstein--Uhlenbeck process.…
We study the profitability of optimal mean reversion trading strategies in the US equity market. Different from regular pair trading practice, we apply maximum likelihood method to construct the optimal static pairs trading portfolio that…
In this work we study a continuous time exponential utility maximization problem in the presence of a linear temporary price impact. More precisely, for the case where the risky asset is given by the Ornstein-Uhlenbeck diffusion process we…
We study an optimal liquidation problem with multiplicative price impact in which the trend of the asset's price is an unobservable Bernoulli random variable. The investor aims at selling over an infinite time-horizon a fixed amount of…
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…
Optimal control models for limit order trading often assume that the underlying asset price is a Brownian motion since they deal with relatively short time scales. The resulting optimal bid and ask limit order prices tend to track the…
For classification of the high frequency trading quantities, waiting times, price increments within and between sessions are referred to as the a-, b-, and c-increments. Statistics of the a-b-c-increments are computed for the Time & Sales…
We consider the strategic interaction of traders in a continuous-time financial market with Epstein-Zin-type recursive intertemporal preferences and performance concerns. We derive explicitly an equilibrium for the finite player and the…
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…
The question addressed in this paper is the performance of the optimal strategy, and the impact of partial information. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable…
We study a dynamic portfolio optimization problem related to convergence trading, which is an investment strategy that exploits temporary mispricing by simultaneously buying relatively underpriced assets and selling short relatively…
Calibrating a trading rule using a historical simulation (also called backtest) contributes to backtest overfitting, which in turn leads to underperformance. In this paper we propose a procedure for determining the optimal trading rule…
This paper is concerned with the problem of finding the optimal of extraction policies of an oil field in light of various financial and economical restrictions and constraints. Taking into account the fact that the oil price in worldwide…
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 formulate an equilibrium model of intraday trading in electricity markets. Agents face balancing constraints between their customers consumption plus intraday sales and their production plus intraday purchases. They have continuously…
The primary challenge of market making in spot precious metals is navigating the liquidity that is mainly provided by futures contracts. The Exchange for Physical (EFP) spread, which is the price difference between futures and spot, plays a…
We study the problem of dynamically trading futures in a regime-switching market. Modeling the underlying asset price as a Markov-modulated diffusion process, we present a utility maximization approach to determine the optimal futures…
Since they were authorized by the U.S. Security and Exchange Commission in 1998, electronic exchanges have boomed, and by 2010 high frequency trading accounted for over 70% of equity trades in the US. Such markets are thought to increase…
We study risk-sharing equilibria with general convex costs on the agents' trading rates. For an infinite-horizon model with linear state dynamics and exogenous volatilities, we prove that the equilibrium returns mean-revert around their…
The Ornstein-Uhlenbeck (OU) process, a mean-reverting stochastic process, has been widely applied as a time series model in various domains. This paper describes the design and implementation of a model-based synthetic time series model…