Related papers: Optimal order execution under price impact: A hybr…
We consider an optimal trading problem under a market impact model with endogenous market resistance generated by a sophisticated trader who (partially) detects metaorders and trades against them to exploit price overreactions induced by…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
This paper studies the ubiquitous problem of liquidating large quantities of highly correlated stocks, a task frequently encountered by institutional investors and proprietary trading firms. Traditional methods in this setting suffer from…
In this paper we formulate the now classical problem of optimal liquidation (or optimal trading) inside a Mean Field Game (MFG). This is a noticeable change since usually mathematical frameworks focus on one large trader in front of a…
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…
We introduce and study a simple model of a limit order-driven market. Traders in this model can either trade at the market price or place a limit order, i.e. an instruction to buy (sell) a certain amount of the stock if its price falls…
Most of the existing literature on optimal trade execution in limit order book models assumes that resilience is positive. But negative resilience also has a natural interpretation, as it models self-exciting behaviour of the price impact,…
If a financial asset's price movement impacts a firm's product demand, the firm can respond to the impact by adjusting its operational decisions. For example, in the automotive industry, car makers decrease the selling prices of…
We analyze the efficiency of markets with friction, particularly power markets. We model the market as a dynamic system with $(d_t;\,t\geq 0)$ the demand process and $(s_t;\,t\geq 0)$ the supply process. Using stochastic differential…
The practice of valuation by marking-to-market with current trading prices is seriously flawed. Under leverage the problem is particularly dramatic: due to the concave form of market impact, selling always initially causes the expected…
We study the problem of optimal trading using general alpha predictors with linear costs and temporary impact. We do this within the framework of stochastic optimization with finite horizon using both limit and market orders. Consistently…
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…
We study $N$-player optimal execution games in an Obizhaeva--Wang model of transient price impact. When the game is regularized by an instantaneous cost on the trading rate, a unique equilibrium exists and we derive its closed form. Whereas…
We consider an exchange who wishes to set suitable make-take fees to attract liquidity on its platform. Using a principal-agent approach, we are able to describe in quasi-explicit form the optimal contract to propose to a market maker. This…
This paper studies the fill probabilities of limit orders placed at different price levels in a limit order book. These probabilities play a central role in execution optimization, as limit orders are not guaranteed to be executed and…
Order book imbalance (OBI) - buy orders minus sell orders near the best quote - measures supply-demand imbalance that can move prices. OBI is positively correlated with returns, and some investors try to use it to improve performance. Large…
Volume imbalance in a limit order book is often considered as a reliable indicator for predicting future price moves. In this work, we seek to analyse the nuances of the relationship between prices and volume imbalance. To this end, we…
It is known that the impact of transactions on stock price (market impact) is a concave function of the size of the order, but there exists little quantitative theory that suggests why this is so. I develop a quantitative theory for the…
This article provides a novel framework to evaluate limit order tactics that highlights expected fill price, adverse price selection cost, and opportunity cost. We formulate the problem of optimal execution of market orders with nonlinear…
Large scale electricity storage is set to play an increasingly important role in the management of future energy networks. A major aspect of the economics of such projects is captured in arbitrage, i.e. buying electricity when it is cheap…