Related papers: Arbitrage risk induced by transaction costs
Currency arbitrage leverages price discrepancies in currency exchange rates across different currency pairs to gain risk-free profits. It involves multiple trading, where short-lived price discrepancies require real-time, high-speed…
We study the explicit calculation of the set of superhedging portfolios of contingent claims in a discrete-time market model for d assets with proportional transaction costs. The set of superhedging portfolios can be obtained by a recursive…
Geometric arbitrage theory reformulates a generic asset model possibly allowing for arbitrage by packaging all asset and their forward dynamics into a stochastic principal fibre bundle, with a connection whose parallel transport encodes…
We explore the role that random arbitrage opportunities play in hedging financial derivatives. We extend the asymptotic pricing theory presented by Fedotov and Panayides [Stochastic arbitrage return and its implication for option pricing,…
Financial portfolio construction problems are often formulated as quadratic and discrete (combinatorial) optimization that belong to the nondeterministic polynomial time (NP)-hard class in computational complexity theory. Ising machines are…
The goal of this article is to understand some interesting features of sequences of arbitrage operations, which look relevant to various processes in Economics and Finances. In the second part of the paper, analysis of sequences of…
Statistical arbitrage exploits temporal price differences between similar assets. We develop a unifying conceptual framework for statistical arbitrage and a novel data driven solution. First, we construct arbitrage portfolios of similar…
We present an algorithm which efficiently estimates the intrinsic long-term value of a portfolio of assets on a quantum computer. The method relies on quantum amplitude estimation to estimate the mean of a novel implementation of the…
We study how trading costs are reflected in equilibrium returns. To this end, we develop a tractable continuous-time risk-sharing model, where heterogeneous mean-variance investors trade subject to a quadratic transaction cost. The…
This survey is an introduction to asymptotic methods for portfolio-choice problems with small transaction costs. We outline how to derive the corresponding dynamic programming equations and simplify them in the small-cost limit. This allows…
Portfolio construction has been a long-standing topic of research in finance. The computational complexity and the time taken both increase rapidly with the number of investments in the portfolio. It becomes difficult, even impossible for…
A speculative agent with Prospect Theory preference chooses the optimal time to purchase and then to sell an indivisible risky asset to maximize the expected utility of the round-trip profit net of transaction costs. The optimization…
Statistical arbitrage methods identify mispricings in securities with the goal of building portfolios which are weakly correlated with the market. In pairs trading, an arbitrage opportunity is identified by observing relative price…
Portfolio optimization plays a central role in finance to obtain optimal portfolio allocations that aim to achieve certain investment goals. Over the years, many works have investigated different variants of portfolio optimization.…
In the paper we study markets with concave transaction costs which depend in a concave way on the volume of transaction. This is typical situation in the case of small investors, which commonly appears in currency and real estate markets.…
Computation plays a major role in decision making. Even if an agent is willing to ascribe a probability to all states and a utility to all outcomes, and maximize expected utility, doing so might present serious computational problems.…
This paper builds a model of interactive belief hierarchies to derive the conditions under which judging an arbitrage opportunity requires Bayesian market participants to exercise their higher-order beliefs. As a Bayesian, an agent must…
We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante…
Quantitative trading is an integral part of financial markets with high calculation speed requirements, while no quantum algorithms have been introduced into this field yet. We propose quantum algorithms for high-frequency statistical…
In this paper, we consider the problem of hedging Asian options in financial markets with transaction costs. For this, we use the asymptotic hedging approach. The main task of asymptotic hedging in financial markets with transaction costs…