Related papers: Macroscopic Market Making
This paper studies optimal liquidity provision for perpetual contracts when the funding rate is a stochastic state variable. The core extension to classical market making is the coupling between inventory and funding payments: inventory…
This paper discusses the problem of estimating a stochastic signal from nonlinear uncertain observations with time-correlated additive noise described by a first-order Markov process. Random deception attacks are assumed to be launched by…
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…
We present a principled approach for estimating the matrix of microscopic rates among states of a Markov process, given only its stationary state population distribution and a single average global kinetic observable. We adapt Maximum…
Stochastic approximation is a framework unifying many random iterative algorithms occurring in a diverse range of applications. The stability of the process is often difficult to verify in practical applications and the process may even be…
This paper examines a trade execution game for two large traders in a generalized price impact model. We incorporate a stochastic and sequentially dependent factor that exogenously affects the market price into financial markets. Our model…
We introduce a general framework for Markov decision problems under model uncertainty in a discrete-time infinite horizon setting. By providing a dynamic programming principle we obtain a local-to-global paradigm, namely solving a local,…
We consider a market where a finite number of players trade an asset whose supply is a stochastic process. The price formation problem consists of finding a price process that ensures that when agents act optimally to minimize their trading…
This paper presents an axiomatic approach to finite Markov decision processes where the discount rate is zero. One of the principal difficulties in the no discounting case is that, even if attention is restricted to stationary policies, a…
The purpose of this paper is to review and highlight some connections between the problem of nonlinear smoothing and optimal control of the Liouville equation. The latter has been an active area of recent research interest owing to work in…
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…
This paper shows that the optimal policy and value functions of a Markov Decision Process (MDP), either discounted or not, can be captured by a finite-horizon undiscounted Optimal Control Problem (OCP), even if based on an inexact model.…
We study the optimal timing of derivative purchases in incomplete markets. In our model, an investor attempts to maximize the spread between her model price and the offered market price through optimally timing her purchase. Both the…
The first-order optimality conditions for a generic nonlinear optimization problem are generated as part of the terminal transversality conditions of an optimal control problem. It is shown that the Lagrangian of the optimization problem is…
The problem of constrained Markov decision process is considered. An agent aims to maximize the expected accumulated discounted reward subject to multiple constraints on its costs (the number of constraints is relatively small). A new dual…
We consider a class of optimal control problems, with finite or infinite horizon, for a continuous-time Markov chain with finite state space. In this case, the control process affects the transition rates. We suppose that the controlled…
We present a methodology for representing probabilistic relationships in a general-equilibrium economic model. Specifically, we define a precise mapping from a Bayesian network with binary nodes to a market price system where consumers and…
The paper develops general, discrete, non-probabilistic market models and minmax price bounds leading to price intervals for European options. The approach provides the trajectory based analogue of martingale-like properties as well as a…
The objective of this work is to study continuous-time Markov decision processes on a general Borel state space with both impulsive and continuous controls for the infinite-time horizon discounted cost. The continuous-time controlled…
In this article, we consider the deterministic impulsively controlled system with infinite horizon and several discounted objective functionals. The constructed optimal control problem with functional constraints is reformulated as a Markov…