Related papers: Does the Market Anticipate? Can it? Should it?
This paper studies the optimal investment problem with random endowment in an inventory-based price impact model with competitive market makers. Our goal is to analyze how price impact affects optimal policies, as well as both pricing rules…
It is well known that the minimal superhedging price of a contingent claim is too high for practical use. In a continuous-time model uncertainty framework, we consider a relaxed hedging criterion based on acceptable shortfall risks.…
We present an experimental and simulated model of a multi-agent stock market driven by a double auction order matching mechanism. Studying the effect of cumulative information on the performance of traders, we find a non monotonic…
In many settings, multiple uninformed agents bargain simultaneously with a single informed agent in each of multiple periods. For example, workers and firms negotiate each year over salaries, and the firm has private information about the…
We study the optimal asset allocation problem for a fund manager whose compensation depends on the performance of her portfolio with respect to a benchmark. The objective of the manager is to maximise the expected utility of her final…
We show that coherent risk measures are ineffective in curbing the behaviour of investors with limited liability or excessive tail-risk seeking behaviour if the market admits statistical arbitrage opportunities which we term…
This paper presents a stochastic model for discrete-time trading in financial markets where trading costs are given by convex cost functions and portfolios are constrained by convex sets. The model does not assume the existence of a cash…
It is well known that a non-cooperative game may have multiple equilibria. In this paper we consider the efficiency of games, measured by the ratio between the aggregate payoff over all Nash equilibria and that over all admissible controls.…
We consider an agent who needs to buy (or sell) a relatively small amount of asset over some fixed short time interval. We work at the highest frequency meaning that we wish to find the optimal tactic to execute our quantity using limit…
We study strategic interactions in a broker-mediated market in which agents learn and exploit each other's private information. A broker provides liquidity to an informed trader and to noise traders while managing inventory in a lit market.…
We study the problem of the optimal execution of a large trade in the presence of nonlinear transient impact. We propose an approach based on homotopy analysis, whereby a well behaved initial strategy is continuously deformed to lower the…
An attempt to obtain market directional information from non-stationary solution of the dynamic equation: "future price tends to the value maximizing the number of shares traded per unit time" is presented. A remarkable feature of the…
We consider the mean-variance hedging problem under partial information in the case where the flow of observable events does not contain the full information on the underlying asset price process. We introduce a martingale equation of a new…
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…
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…
Energy market designs with non-merchant storage have been proposed in recent years, with the aim of achieving optimal market integration of storage. In order to handle the time-linking constraints that are introduced in such markets,…
The seminal impossibility result of Myerson and Satterthwaite (1983) states that for bilateral trade, there is no mechanism that is individually rational (IR), incentive compatible (IC), weakly budget balanced, and efficient. This has led…
We consider stopping problems in which a decision maker (DM) faces an unknown state of nature and decides sequentially whether to stop and take an irreversible action; pay a fee and obtain additional information; or wait without acquiring…
We introduce a general framework for continuous-time betting markets, in which a bookmaker can dynamically control the prices of bets on outcomes of random events. In turn, the prices set by the bookmaker affect the rate or intensity of…
Perfectly rational decision-makers maximize expected utility, but crucially ignore the resource costs incurred when determining optimal actions. Here we employ an axiomatic framework for bounded rational decision-making based on a…