Related papers: Arbitrage risk induced by transaction costs
In a financial market, for agents with long investment horizons or at times of severe market stress, it is often changes in the asset price that act as the trigger for transactions or shifts in investment position. This suggests the use of…
Portfolio optimization (PO) is extensively employed in financial services to assist in achieving investment objectives. By providing an optimal asset allocation, PO effectively balances the risk and returns associated with investments.…
In the paper we study dynamics of the arbitrage prices of credit default swaps within a hazard process model of credit risk. We derive these dynamics without postulating that the immersion property is satisfied between some relevant…
A fast implementation of the quantum imaginary time evolution (QITE) algorithm called Fast QITE is proposed. The algorithmic cost of QITE typically scales exponentially with the number of particles it nontrivially acts on in each Trotter…
This paper investigates arbitrage chains involving four currencies and four foreign exchange trader-arbitrageurs. In contrast with the three-currency case, we find that arbitrage operations when four currencies are present may appear…
We briefly review our recent studies on stochastic processes modelling internet on-line trading. We present a way to evaluate the average waiting time between the observation of the price in financial markets and the next price change,…
We extend variational quantum optimization algorithms for Quadratic Unconstrained Binary Optimization problems to the class of Mixed Binary Optimization problems. This allows us to combine binary decision variables with continuous decision…
The estimation of fill probabilities for trade orders represents a key ingredient in the optimization of algorithmic trading strategies. It is bound by the complex dynamics of financial markets with inherent uncertainties, and the…
We study optimal investment problems under the framework of cumulative prospect theory (CPT). A CPT investor makes investment decisions in a single-period financial market with transaction costs. The objective is to seek the optimal…
We give a brief introduction to the Gauge Theory of Arbitrage. Treating a calculation of Net Present Values (NPV) and currencies exchanges as a parallel transport in some fibre bundle, we give geometrical interpretation of the interest…
Quantum computers have the potential to provide an advantage for financial pricing problems by the use of quantum estimation. In a broader context, it is reasonable to ask about situations where the market and the assets traded on the…
Post Modigliani and Miller (1958), the concept of usage of arbitrage created a permanent mark on the discourses of financial framework. The arbitrage process is largely based on information dissemination amongst the stakeholders operating…
This paper investigates the time-varying risk-premium relation of the Chinese stock markets within the framework of cross-sectional momentum and contrarian effects by adopting the Capital Asset Pricing Model and the French-Fama three factor…
Duality for robust hedging with proportional transaction costs of path dependent European options is obtained in a discrete time financial market with one risky asset. Investor's portfolio consists of a dynamically traded stock and a static…
In this paper we investigate discrete time trading under integer constraints, that is, we assume that the offered goods or shares are traded in integer quantities instead of the usual real quantity assumption. For finite probability spaces…
We show that the sum of a sequence of integers can be computed in linear time on a Turing machine. In particular, the most obvious algorithm for this problem, which appears to require quadratic time due to carry propagation, actually runs…
This paper studies a finite-horizon portfolio selection problem with non-concave terminal utility and proportional transaction costs, in which the commonly used concavification principle for terminal value is no longer applicable. We…
While there are various approaches to benchmark physical processors, recent findings have focused on computational phase transitions. This is due to several factors. Importantly, the hardest instances appear to be well-concentrated in a…
This study provides a practical introduction to high-frequency trading in blockchain-based currency markets. These types of markets have some specific characteristics that differentiate them from the stock markets, such as a large number of…
We consider a multivariate financial market with transaction costs and study the problem of finding the minimal initial capital needed to hedge, without risk, European-type contingent claims. The model is similar to the one considered in…