Related papers: Relation between Bid-Ask Spread, Impact and Volati…
Recent research on the response of stock prices to trading activity revealed long lasting effects, even across stocks of different companies. These results imply non-Markovian effects in price formation and when trading many stocks at the…
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
We propose a framework for studying optimal market making policies in a limit order book (LOB). The bid-ask spread of the LOB is modelled by a Markov chain with finite values, multiple of the tick size, and subordinated by the Poisson…
We study portfolio selection in a model with both temporary and transient price impact introduced by Garleanu and Pedersen (2016). In the large-liquidity limit where both frictions are small, we derive explicit formulas for the…
We study the dynamics of order flows around large intraday price changes using ultra-high-frequency data from the Shenzhen Stock Exchange. We find a significant reversal of price for both intraday price decreases and increases with a…
Although behavioral economics has demonstrated that there are many situations where rational choice is a poor empirical model, it has so far failed to provide quantitative models of economic problems such as price formation. We make a step…
Estimating market impact and transaction costs of large trades (metaorders) is a very important topic in finance. However, using models of price and trade based on public market data provide average price trajectories which are…
This article provides a novel framework to evaluate limit order tactics that highlights expected fill price, adverse price selection cost, and opportunity cost. We formulate the problem of optimal execution of market orders with nonlinear…
The purpose of this work is to explore the role that arbitrage opportunities play in pricing financial derivatives. We use a non-equilibrium model to set up a stochastic portfolio, and for the random arbitrage return, we choose a stationary…
Based on the order flow data of a stock and its warrant, the immediate price impacts of market orders are estimated by two competitive models, the power-law model (PL model) and the logarithmic model (LG model). We find that the PL model is…
We propose and analyze a day-ahead reserve market model that handles bids from flexible loads. This pool market model takes into account the fact that a load modulation in one direction must usually be compensated later by a modulation of…
We present an empirical study of the intertwined behaviour of members in a financial market. Exploiting a database where the broker that initiates an order book event can be identified, we decompose the correlation and response functions…
We study the problem of the optimal execution of a large trade in the presence of nonlinear transient impact. We propose an approach based on homotopy analysis, whereby a well behaved initial strategy is continuously deformed to lower the…
An important revenue stream for electric battery operators is often arbitraging the hourly price spreads in the day-ahead auction. The optimal approach to this is challenging if risk is a consideration as this requires the estimation of…
We consider economic obstacles that limit the reliability and accuracy of value-at-risk (VaR). Investors who manage large market transactions should take into account the impact of the randomness of large trade volumes on predictions of…
We price weather-contingent options by use of Monte Carlo simulations. After calibrating the models to fit quoted prices, we analyze bid-ask spreads in terms of correlations across markets. Results are presented for a double-trigger Weather…
Flaws of a continuous limit order book mechanism raise the question of whether a continuous trading session and a periodic auction session would bring better efficiency. This paper wants to go further in designing a periodic auction when…
We describe how the market-based average and volatility of the "actual" return, which the investors gain within their market sales, depend on the statistical moments, volatilities, and correlations of the current and past market trade…
We investigate the use of the normalized imbalance between option volumes corresponding to positive and negative market views, as a predictor for directional price movements in the spot market. Via a nonlinear analysis, and using a…
This paper assumes that the randomness of market trade values and volumes determines the properties of stochastic market prices. We derive the direct dependence of the first two price statistical moments and price volatility on statistical…