Related papers: The Feedback Effect of Hedging in Portfolio Optimi…
This paper addresses the trade-off between internalisation and externalisation in the management of stochastic trade flows. We consider agents who must absorb flows and manage risk by deciding whether to warehouse it or hedge in the market,…
A risk-averse agent hedges her exposure to a non-tradable risk factor $U$ using a correlated traded asset $S$ and accounts for the impact of her trades on both factors. The effect of the agent's trades on $U$ is referred to as cross-impact.…
We give a criterion under which the expected return on a ticket for certain large lotteries is positive. In this circumstance, we use elementary portfolio analysis to show that an optimal investment strategy includes a very small allocation…
We develop a model for indifference pricing in derivatives markets where price quotes have bid-ask spreads and finite quantities. The model quantifies the dependence of the prices and hedging portfolios on an investor's beliefs, risk…
We discuss a method for predicting financial movements and finding pockets of predictability in the price-series, which is built around inferring the heterogeneity of trading strategies in a multi-agent trader population. This work explores…
An algorithm was recently introduced by INTECH for the purposes of estimating the trading-profit contribution of systematic rebalancing to the relative return of rules-based investment strategies. We apply this methodology to analyze the…
With the advent of Web 2.0, various types of data are being produced every day. This has led to the revolution of big data. Huge amount of structured and unstructured data are produced in financial markets. Processing these data could help…
Optimization methods are used to determine equilibria of investment in cryptocurrencies. The basic assumptions involve existence of a core group (the "wealthy") that fears the loss of substantial assets through government seizure.…
All the financial practitioners are working in incomplete markets full of unhedgeable risk-factors. Making the situation worse, they are only equipped with the imperfect information on the relevant processes. In addition to the market risk,…
This survey reviews portfolio choice in settings where investment opportunities are stochastic due to, e.g., stochastic volatility or return predictability. It is explained how to heuristically compute candidate optimal portfolios using…
In this paper, we use replica analysis to investigate the influence of correlation among the return rates of assets on the solution of the portfolio optimization problem. We consider the behavior of the optimal solution for the case where…
The role of portfolio construction in the implementation of equity market neutral factors is often underestimated. Taking the classical momentum strategy as an example, we show that one can significantly improve the main strategy's features…
We model the impact costs of a strategy that trades a basket of correlated instruments, by extending to the multivariate case the linear propagator model previously used for single instruments. Our specification allows us to calibrate a…
The goal of this paper is to explore the relationship between momentum effects and liquidity in cryptocurrency markets. Portfolios based on momentum-liquidity bivariate sorts are formed and rebalanced on a varying number of cryptocurrencies…
The leverage effect refers to the generally negative correlation between the return of an asset and the changes in its volatility. There is broad agreement in the literature that the effect should be present for theoretical reasons, and it…
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…
We introduce a trade strategy representation theorem for performance measurement and portable alpha in high frequency trading, by embedding a robust trading algorithm that describe portfolio manager market timing behavior, in a canonical…
In this paper we explore optimal liquidation in a market populated by a number of heterogeneous market makers that have limited inventory-carrying and risk-bearing capacity. We derive a reduced form model for the dynamic of their aggregated…
This paper derives a portfolio decomposition formula when the agent maximizes utility of her wealth at some finite planning horizon. The financial market is complete and consists of multiple risky assets (stocks) plus a risk free asset. The…
In this article, we provide a flexible framework for optimal trading in an asset listed on different venues. We take into account the dependencies between the imbalance and spread of the venues, and allow for partial execution of limit…