Related papers: Costly Trading
We consider an agent who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of a proportional transaction cost. The utility function considered is…
This paper studies the utility maximization on the terminal wealth with random endowments and proportional transaction costs. To deal with unbounded random payoffs from some illiquid claims, we propose to work with the acceptable portfolios…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a…
The goal of this work is to study binary market models with transaction costs, and to characterize their arbitrage opportunities. It has been already shown that the absence of arbitrage is related to the existence of \lambda-consistent…
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…
In this paper, we consider a financial market with assets exposed to some risks inducing jumps in the asset prices, and which can still be traded after default times. We use a default-intensity modeling approach, and address in this…
We study the relationship between price spread, volatility and trading volume. We find that spread forms as a result of interplay between order liquidity and order impact. When trading volume is small adding more liquidity helps improve…
In this paper, we examine in an abstract framework, how a tradeoff between efficiency and robustness arises in different dynamic oligopolistic market architectures. We consider a market in which there is a monopolistic resource provider and…
In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason…
This paper studies the topic of cost-efficiency in incomplete markets. A payoff is called cost-efficient if it achieves a given probability distribution at some given investment horizon with a minimum initial budget. Extensive literature…
We consider an optimal consumption/investment problem to maximize expected utility from consumption. In this market model, the investor is allowed to choose a portfolio which consists of one bond, one liquid risky asset (no transaction…
We examine optimal execution models that take into account both market microstructure impact and informational costs. Informational footprint is related to order flow and is represented by the trader's influence on the flow imbalance…
We prove the existence of a continuous-time Radner equilibrium with multiple agents and transaction costs. The agents are incentivized to trade towards a targeted number of shares throughout the trading period and seek to maximize their…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…
This paper studies the problem of maximizing expected utility from terminal wealth combining a static position in derivative securities, which we assume can be traded only at time zero, with a traditional dynamic trading strategy in stocks.…
We study an optimal execution problem in illiquid markets with both instantaneous and persistent price impact and stochastic resilience when only absolutely continuous trading strategies are admissible. In our model the value function can…
We consider the problem of optimal hedging in an incomplete market with an established pricing kernel. In such a market, prices are uniquely determined, but perfect hedges are usually not available. We work in the rather general setting of…
We consider a one-period Kyle (1985) framework where the insider can be subject to a penalty if she trades. We establish existence and uniqueness of equilibrium for virtually any penalty function when noise is uniform. In equilibrium, the…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…