Related papers: Risk-return arguments applied to options with trad…

An agent choosing between various actions tends to take the one with the lowest cost. But this choice is arguably too rigid (not adaptive) to be useful in complex situations, e.g., where exploration-exploitation trade-off is relevant in…

Extensive work has been conducted both in game theory and logic to model strategic interaction. An important question is whether we can use these theories to design agents for interacting with people? On the one hand, they provide a formal…

A standing assumption in the literature on proportional transaction costs is efficient friction. Together with robust no free lunch with vanishing risk, it rules out strategies of infinite variation, as they usually appear in frictionless…

In a fixed time horizon, appropriately executing a large amount of a particular asset -- meaning a considerable portion of the volume traded within this frame -- is challenging. Especially for illiquid or even highly liquid but also highly…

Methods for learning optimal policies in autonomous agents often assume that the way the domain is conceptualised---its possible states and actions and their causal structure---is known in advance and does not change during learning. This…

We study the classic principal-agent model when the signal observed by the principal is chosen by the agent. We fully characterize the optimal information structure from an agent's perspective in a general moral hazard setting with limited…

Regression plays a key role in many research areas and its variable selection is a classic and major problem. This study emphasizes cost of predictors to be purchased for future use, when we select a subset of them. Its economic aspect is…

This paper considers the problem of optimal liquidation of a position in a risky security in a financial market, where price evolution are risky and trades have an impact on price as well as uncertainty in the filling orders. The problem is…

We study partial hedging for game options in markets with transaction costs bounded from below. More precisely, we assume that the investor's transaction costs for each trade are the maximum between proportional transaction costs and a…

Trading large volumes of a financial asset in order driven markets requires the use of algorithmic execution dividing the volume in many transactions in order to minimize costs due to market impact. A proper design of an optimal execution…

We revisit two classical problems: the determination of the law of the underlying with respect to a risk-neutral measure on the basis of option prices, and the pricing of options with convex payoffs in terms of prices of call options with…

One of the most celebrated results in mechanism design is Myerson's characterization of the revenue optimal auction for selling a single item. However, this result relies heavily on the assumption that buyers are indifferent to risk. In…

We prove the existence of a continuous-time Radner equilibrium with multiple agents and transaction costs. The agents are incentivized to trade towards a targeted number of shares throughout the trading period and seek to maximize their…

Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which…

Negotiation is a very common interaction between automated agents. Many common negotiation protocols work with cardinal utilities, even though ordinal preferences, which only rank the outcomes, are easier to elicit from humans. In this work…

This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…

We introduce an agent-based model, in which agents set their prices to maximize profit. At steady state the market self-organizes into three groups: excess producers, consumers and balanced agents, with prices determined by their own…

Agents that learn to select optimal actions represent a prominent focus of the sequential decision-making literature. In the face of a complex environment or constraints on time and resources, however, aiming to synthesize such an optimal…

This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded…

We study the formation of derivative prices in equilibrium between risk-neutral agents with heterogeneous beliefs about the dynamics of the underlying. Under the condition that the derivative cannot be shorted, we prove the existence of a…