Related papers: Optimal Convergence Trading
We extend the theory of asymmetric information in mispricing models for stocks following geometric Brownian motion to constant relative risk averse investors. Mispricing follows a continuous mean--reverting Ornstein--Uhlenbeck process.…
We investigate a dividend maximization problem under stochastic interest rates with Ornstein-Uhlenbeck dynamics. This setup also takes negative rates into account. First a deterministic time is considered, where an explicit separating curve…
We study the problem of optimal portfolio selection in an illiquid market with discrete order flow. In this market, bids and offers are not available at any time but trading occurs more frequently near a terminal horizon. The investor can…
In recent decades, companies have frequently adopted share repurchase programs to return capital to shareholders or for other strategic purposes, instructing investment banks to rapidly buy back shares on their behalf. When the executing…
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…
We propose a strategy for automated trading, outline theoretical justification of the profitability of this strategy and overview the hypothetical results in application to currency pairs trading. The proposed methodology relies on the…
We consider the hedging error of a derivative due to discrete trading in the presence of a drift in the dynamics of the underlying asset. We suppose that the trader wishes to find rebalancing times for the hedging portfolio which enable him…
An investor with constant relative risk aversion and an infinite planning horizon trades a risky and a safe asset with constant investment opportunities, in the presence of small transaction costs and a binding exogenous portfolio…
Optimal multi-asset trading with Markovian predictors is well understood in the case of quadratic transaction costs, but remains intractable when these costs are $L_1$. We present a mean-field approach that reduces the multi-asset problem…
Discrete time hedging in a complete diffusion market is considered. The hedge portfolio is rebalanced when the absolute difference between delta of the hedge portfolio and the derivative contract reaches a threshold level. The rate of…
The aim of this paper is to compare the performances of the optimal strategy under parameters mis-specification and of a technical analysis trading strategy. The setting we consider is that of a stochastic asset price model where the trend…
This paper introduces a novel methodology for the pricing and management of share buyback contracts, overcoming the limitations of traditional optimal control methods, which frequently encounter difficulties with high-dimensional state…
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 consider the classical multi-asset Merton investment problem under drift uncertainty, i.e. the asset price dynamics are given by geometric Brownian motions with constant but unknown drift coefficients. The investor assumes a prior drift…
This paper examines an optimal investment problem in a continuous-time (essentially) complete financial market with a finite horizon. We deal with an investor who behaves consistently with principles of Cumulative Prospect Theory, and whose…
We consider an arbitrage-free, discrete time and frictionless market. We prove that an investor maximising the expected utility of her terminal wealth can always find an optimal investment strategy provided that her dissatisfaction of…
In a continuous-time model with multiple assets described by c\`{a}dl\`{a}g processes, this paper characterizes superhedging prices, absence of arbitrage, and utility maximizing strategies, under general frictions that make execution prices…
We consider insurance derivatives depending on an external physical risk process, for example a temperature in a low dimensional climate model. We assume that this process is correlated with a tradable financial asset. We derive optimal…
The classical discrete time model of proportional transaction costs relies on the assumption that a feasible portfolio process has solvent increments at each step. We extend this setting in two directions, allowing for convex transaction…
I characterize optimal government policy in a sticky-price economy with different types of consumers and endogenous financial constraints in the banking and entrepreneurial sectors. The competitive equilibrium allocation is constrained…