Related papers: A Simple Strategy to Deal with Toxic Flow
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…
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…
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 the equilibrium pricing of asset shares in the presence of dynamic private information. The market consists of a risk-neutral informed agent who observes the firm value, noise traders, and competitive market makers who…
We study a stochastic control approach to managed futures portfolios. Building on the Schwartz 97 stochastic convenience yield model for commodity prices, we formulate a utility maximization problem for dynamically trading a single-maturity…
In FX cash markets, market makers provide liquidity to clients for a wide variety of currency pairs. Because of flow uncertainty and market volatility, they face inventory risk. To mitigate this risk, they typically skew their prices to…
Banks must optimize risky investments, dividend payouts, and capital structure under tight Basel III solvency and liquidity constraints, while costly equity issuance serves as a distress-recovery tool. We formulate this as a stochastic…
This paper considers the ideal gas-like model of trading markets, where each individual is identified as a gas molecule that interacts with others trading in elastic or money-conservative collisions. Traditionally this model introduces…
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…
Here and in a follow-on paper, we consider a simple control problem in which the underlying dynamics depend on a parameter $a$ that is unknown and must be learned. In this paper, we assume that $a$ is bounded, i.e., that $|a| \le…
This paper examines the role of algorithmic trading in modern financial markets. Additionally, order types, characteristics, and special features of algorithmic trading are described under the lens provided by the large development of high…
We propose a price impact model where changes in prices are purely driven by the order flow in the market. The stochastic price impact of market orders and the arrival rates of limit and market orders are functions of the market liquidity…
We study an optimal control problem in which both the objective function and the dynamic constraint contain an uncertain parameter. Since the distribution of this uncertain parameter is not exactly known, the objective function is taken as…
An agent holds a position in a perpetual contract with payoff function $\psi$ and attempts to liquidate the position while managing transaction costs, inventory risk, and funding rate payments. By solving the agent's stochastic control…
We analyze a tractable model of a limit order book on short time scales, where the dynamics are driven by stochastic fluctuations between supply and demand. We establish the existence of a limiting distribution for the highest bid, and for…
The Maximum Flow Problem with Conflict Constraints is a generalization that adds conflict constraints to a classical optimization problem on networks used to model several real-world applications. In the last few years several approaches,…
This paper is concerned with a finite-horizon inverse control problem, which has the goal of reconstructing, from observations, the possibly non-convex and non-stationary cost driving the actions of an agent. In this context, we present a…
This paper investigates the online conversion problem, which involves sequentially trading a divisible resource (e.g., energy) under dynamically changing prices to maximize profit. A key challenge in online conversion is managing decisions…
Strategic information is valuable either by remaining private (for instance if it is sensitive) or, on the other hand, by being used publicly to increase some utility. These two objectives are antagonistic and leaking this information might…
In this letter we propose an optimization-based boundary controller for traffic flow dynamics capable of achieving both stability and invariance conditions. The approach is based on the definition of Boundary Control Barrier Functionals,…