Optimal Multi-Asset Trading With Linear Costs: A Mean-Field Approach

@article{Emschwiller2019OptimalMT,
  title={Optimal Multi-Asset Trading With Linear Costs: A Mean-Field Approach},
  author={Matt Emschwiller and Benjamin Petit and Jean-Philippe Bouchaud},
  journal={ERN: Other Econometric Modeling: Capital Markets - Asset Pricing (Topic)},
  year={2019}
}
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 to a single-asset problem, with an effective predictor that includes a risk averse component. We obtain a simple approximate solution in the case of Ornstein-Uhlenbeck predictors and maximum position constraints. The optimal strategy is of the "bang-bang" type… 
Multi-asset optimal execution and statistical arbitrage strategies under Ornstein-Uhlenbeck dynamics
In recent years, academics, regulators, and market practitioners have increasingly addressed liquidity issues. Amongst the numerous problems addressed, the optimal execution of large orders is

References

SHOWING 1-10 OF 23 REFERENCES
Optimal Trading with Linear Costs
We consider the problem of the optimal trading strategy in the presence of linear costs, and with a strict cap on the allowed position in the market. Using Bellman's backward recursion method, we
Incorporating signals into optimal trading
TLDR
It is shown that in the asymptotic limit where the transient market impact becomes instantaneous, the optimal strategy becomes continuous, which is compatible with the optimal trading framework which was proposed by Cartea and Jaimungal (Appl. Math. Finance 20:512–547, 2013).
Optimal Trading with Linear and (small) Non-Linear Costs
We reconsider the problem of optimal trading in the presence of linear and quadratic costs, for arbitrary linear costs but in the limit where quadratic costs are small. Using matched asymptotic
Dynamic Trading with Predictable Returns and Transaction Costs
This paper derives in closed form the optimal dynamic portfolio policy when trading is costly and security returns are predictable by signals with different mean-reversion speeds. The optimal updated
Portfolio Selection with Transaction Costs
TLDR
It is shown that the optimal buying and selling policies are the local times of the two-dimensional process of bank and stock holdings at the boundaries of a wedge-shaped region which is determined by the solution of a nonlinear free boundary problem.
Trading with Small Price Impact
An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal
Optimal execution of portfolio trans-actions
TLDR
This paper explicitly constructs the efficient frontier in the space of time-dependent liquidation strategies, which have minimum expected cost for a given level of uncertainty, and leads to the concept of Liquidity-adjusted VAR, or L-VaR, that explicitly considers the best tradeoff between volatility risk and liquidation costs.
Mean Reversion Pays, but Costs
A mean-reverting financial instrument is optimally traded by buying it when it is sufficiently below the estimated `mean level' and selling it when it is above. In the presence of linear transaction
Optimal Trading with General Signals and Liquidation in Target Zone Models
We study optimal trading in an Almgren-Chriss model with running and terminal inventory costs and general predictive signals about price changes. As a special case, this allows to treat optimal
Homogenization and Asymptotics for Small Transaction Costs: The Multidimensional Case
In the context of the multi-dimensional infinite horizon optimal consumption investment problem with small proportional transaction costs, we prove an asymptotic expansion. Similar to the
...
1
2
3
...