Related papers: Limit Orders and Knightian Uncertainty
We study the problem of optimal portfolio selection in an illiquid market with discrete order flow. In this market, bids and offers are not available at any time but trading occurs more frequently near a terminal horizon. The investor can…
We consider a trader who aims to liquidate a large position in the presence of an arbitrageur who hopes to profit from the trader's activity. The arbitrageur is uncertain about the trader's position and learns from observed price…
In this paper we characterize the niveloidal preferences that satisfy the Weak Order, Monotonicity, Archimedean, and Weak C-Independence Axioms from the point of view of an intra-personal, leader-follower game. We also show that the…
In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the…
This paper studies a robust portfolio optimization problem under the multi-factor volatility model introduced by Christoffersen et al. (2009). The optimal strategy is derived analytically under the worst-case scenario with or without…
We consider entailment problems involving powerful constraint languages such as frontier-guarded existential rules in which we impose additional semantic restrictions on a set of distinguished relations. We consider restricting a relation…
Existing observational approaches for learning human preferences, such as inverse reinforcement learning, usually make strong assumptions about the observability of the human's environment. However, in reality, people make many important…
What is the demand elasticity of statistical arbitrageurs that invest according to the advice of modern cross-sectional asset pricing models? Thirteen models from the literature exhibit strikingly inelastic demand, in contrast to classical…
Whether you trade futures for yourself or a hedge fund, your strategy is counted. Long and short position limits make the number of unique strategies finite. Formulas of the numbers of strategies, transactions, do nothing actions are…
Hoeffding's Inequality provides the maximum probability that a series of n draws from a bounded random variable differ from the variable's true expectation u by more than given tolerance t. The random variable is typically the error rate of…
We model the trading activity between a broker and her clients (informed and uninformed traders) as an infinite-horizon stochastic control problem. We derive the broker's optimal dealing strategy in closed form and use this to introduce an…
We examine optimization problems in which an investor has the opportunity to trade in $d$ stocks with the goal of maximizing her worst-case cost of cumulative gains and losses. Here, worst-case refers to taking into account all possible…
This paper presents an approach for developing the explanation capabilities of rule-based expert systems managing imprecise and uncertain knowledge. The treatment of uncertainty takes place in the framework of possibility theory where the…
This paper provides a non-robust interpretation of the distributionally robust optimization (DRO) problem by relating the distributional uncertainties to the chance probabilities. Our analysis allows a decision-maker to interpret the size…
This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…
We elicit incomplete preferences over monetary gambles with subjective uncertainty. Subjects rank gambles, and these rankings are used to estimate preferences; payments are based on estimated preferences. About 40\% of subjects express…
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 consider the impact of ambiguity on the optimal timing of a class of two-dimensional integral option contracts when the exercise payoff is a positively homogeneous measurable function. Hence, the considered class of exercise payoffs…
Addressing the ongoing examination of high-frequency trading practices in financial markets, we report the results of an extensive empirical study estimating the maximum possible profitability of the most aggressive such practices, and…
We study the relation between the trading behavior of agents and volatility in toy markets of adaptive inductively rational agents. We show that excess volatility, in such simplified markets, arises as a consequence of {\em i)} the neglect…