Related papers: The Cost of Misspecifying Price Impact
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem…
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple.…
We use multi-class machine learning classifiers to identify the stocks that outperform or underperform other stocks. The resulting long-short portfolios achieve annual Sharpe ratios of 1.67 (value-weighted) and 3.35 (equal-weighted), with…
Trading algorithms that execute large orders are susceptible to exploitation by order anticipation strategies. This paper studies the influence of order anticipation strategies in a multi-investor model of optimal execution under transient…
In this paper we study an optimal portfolio selection problem under instantaneous price impact. Based on some empirical analysis in the literature, we model such impact as a concave function of the trading size when the trading size is…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
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…
While asset-pricing models increasingly recognize that factor risk premia are subject to structural change, existing literature typically assumes that investors correctly account for such instability. This paper studies how investors…
Funds at large portfolio management firms may consist of many portfolio managers (PMs), each managing a portion of the fund and optimizing a distinct objective. Although the PMs determine their trades independently, the trade lists may be…
We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non…
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…
We consider a financial market in which traders potentially face restrictions in trading some of the available securities. Traders are heterogeneous with respect to their beliefs and risk profiles, and the market is assumed thin: traders…
Foundation models - already transformative in domains such as natural language processing - are now starting to emerge for time-series tasks in finance. While these pretrained architectures promise versatile predictive signals, little is…
Technical trading represents a class of investment strategies for Financial Markets based on the analysis of trends and recurrent patterns of price time series. According standard economical theories these strategies should not be used…
The cost of error in many high-stakes settings is asymmetric: misdiagnosing pneumonia when absent is an inconvenience, but failing to detect it when present can be life-threatening. Because of this, artificial intelligence (AI) models used…
The aim of this paper is to compare the performances of the optimal strategy under parameters mis-specification and of a technical analysis trading strategy. The setting we consider is that of a stochastic asset price model where the trend…
We consider the problem of maximizing portfolio value when an agent has a subjective view on asset value which differs from the traded market price. The agent's trades will have a price impact which affect the price at which the asset is…
American options are studied in a general discrete market in the presence of proportional transaction costs, modelled as bid-ask spreads. Pricing algorithms and constructions of hedging strategies, stopping times and martingale…
The trade size $\omega$ has direct impact on the price formation of the stock traded. Econophysical analyses of transaction data for the US and Australian stock markets have uncovered market-specific scaling laws, where a master curve of…