In a continuous-time model with multiple assets described by càdlàg processes, this paper characterizes superhedging prices, absence of arbitrage, and utility maximizing strategies, under general frictions that make execution prices arbitrarily unfavorable for high trading intensity. Such frictions induce a duality bet…
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48 results for “Execution Frictions”
FR-LUX optimizes portfolio management by learning cost-aware policies robust to market conditions.
problem Transaction costs and regime shifts cause failure in live trading portfolios.
method Integrates three ingredients: microstructure-consistent execution model, trade-space trust region, and explicit regime conditioning.
result Achieves top average Sharpe ratio, maintains flat cost-performance slope, and superior risk-return efficiency.
The paper tackles dynamic collateral control for spot-perpetual basis trading in decentralized finance.
problem Dynamic control of collateral in spot-perpetual basis trading in decentralized finance.
method Solves a static control problem and derives an asymmetric dynamic extension, validated with live execution.
result The dynamic control approach provides a more robust operating benchmark and shows significant rebalancing effects.
Utility-Weighted Forecasting and Calibration for Risk-Adjusted Decisions under Trading Frictionsecon.EM
The paper optimizes forecasting for risk-adjusted decisions under trading frictions.
problem Optimizing forecasting accuracy for investment decisions in the presence of transaction costs.
method Develops a utility-weighted calibration criterion to minimize decision loss net of costs.
result Utility-weighted calibration reduces decision loss by over 30% and improves Sharpe ratio.
Beyond Agent Architecture: Execution Assumptions and Reproducibility in LLM-Based Trading Systemscs.AI
LLM-based trading systems vary in execution realism and reproducibility.
problem LLM-based trading systems vary in execution realism and reproducibility.
method Reproducibility audit of 30 trade-relevant primary studies.
result LLM-based trading systems vary in execution realism and reproducibility.
AutoQuant addresses cryptocurrency backtesting fragility by modeling execution costs and improving strategy selection.
problem Fragile backtests of cryptocurrency perpetual futures ignoring microstructure frictions and execution costs.
method Execution-centric framework with Bayesian optimization, double screening, and strict T+1 semantics.
result Fee-only and zero-cost backtests overestimate returns, highlighting the importance of modeling execution costs.
Lazy, perfectly informed investors trade infrequently due to costs.
problem The paradox of an omniscient yet lazy investor trading infrequently.
method Formalized the paradox using geometric and fractional Brownian motion models, derived closed-form profit functions, and proved existence and uniqueness of the optimal trading frequency.
result The optimal trading frequency can be interpreted through the fractal dimension of the price path.
Trading with Small Price Impactq-fin.PM
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 policy and welfare, in a general Markovian setting allowing for stochastic market, cost, and preference parameters. Thes…
Costly Tradingq-fin.PM
Optimal trading patterns adjust based on market efficiency and slippage costs.
problem Balancing active alphas and trading costs in active portfolios.
method Maximization of utility including projected alpha-based profits, slippage costs, and risk aversion.
result Optimal trading involves a no-trade zone width that scales as , differing from stochastic settings.
The Great Deception: A Comprehensive Study of Execution Strategies in Corporate Share Buy-Backsq-fin.GN
This study examines the execution phase of corporate share buy-backs, highlighting inefficiencies and costs.
problem Lack of research on share buy-back execution practices and associated costs.
method Comparative analysis of execution practices and fees charged to corporations and investors.
result Uncovered inefficiencies and frictional costs in share buy-back executions, advocating for transparency and fairness.
Generative model creates frictional surfaces from friction laws.
problem Designing frictional interfaces with prescribed behavior is challenging.
method Uses Variational Autoencoders (VAEs) to infer surface topographies from friction laws.
result Efficiently generates candidate topographies without contact simulations.
Myopic optimization outperforms reinforcement learning in portfolio management, leading to lower returns and higher risks.
problem Reinforcement learning strategies in portfolio management yield lower or negative returns and higher risks compared to myopic optimization.
method Modeling execution/liquidation frictions with mark-to-market accounting, using Malliavin calculus to derive policy gradients and risk shadow price, and quantifying phantom profit.
result Myopic optimization outperforms reinforcement learning in portfolio management, leading to better returns and lower risks.
Unified Asymptotics For Investment Under Illiquidity: Transaction Costs And Search Frictionsq-fin.MF
Unified asymptotics for investment in markets with transaction costs and search frictions.
problem Investment in markets with transaction costs and search frictions.
method Power-utility maximization problem with proportional transaction costs and Poisson-triggered trades, analyzed using a novel asymptotic framework.
result Explicit asymptotics for the no-trade region and value function derived.
Proposes a new framework for invariant quadratic P&L predictions in option books.
problem Inconsistent second-order P&L predictions across different factor parameterizations.
method Local, model-agnostic framework using covariant Hessian defined by an affine connection.
result Coordinate-invariant quadratic P&L predictions that match desk targets.
Market trade-routes can support infectious-disease transmission, impacting biological populations and even disrupting causal trade. Epidemiological models increasingly account for reductions in infectious contact, such as risk-aversion behaviour in response to pathogen outbreaks. However, market dynamics clearly differ…
In this paper, the problem of road friction prediction from a fleet of connected vehicles is investigated. A framework is proposed to predict the road friction level using both historical friction data from the connected cars and data from weather stations, and comparative results from different methods are presented. …
Model analyzes trading frictions in cap-and-trade markets, showing how they interact to affect market effectiveness.
problem Analyzing how trading frictions impact cap-and-trade market effectiveness.
method Developed a dynamic stochastic model with multiple trading frictions, characterized access choices in closed form, and quantified using EU ETS data.
result Trading frictions interact to amplify or dampen market responses, and their combined effect is non-additive.
Study reveals opacity in insider sales, leading to inefficiencies in capital allocation.
problem Insider sales opacity due to reporting inversion of Form 144 and Form 4.
method Event study framework, machine learning audit, cross-sectional tests.
result Persistent opacity of insider sales signals, leading to inefficiencies in capital allocation.
Novel signature approach for pricing and hedging path-dependent options with market frictions.
problem Pricing and hedging path-dependent options with market frictions.
method Signature approach, mean-quadratic variation criterion, non-standard infinite-dimensional Riccati equations, time-augmented signature, non-Markovian stochastic control problem.
result Effective hedging strategies in frictional markets with low-truncated signature approximations.
This paper introduces a new metric to improve the performance of AMMs over centralised exchanges.
problem Lack of a precise metric to compare AMM performance with centralised exchanges.
method Introduces Rebalancing-versus-Rebalancing (RVR) to measure AMM performance more accurately.
result AMMs can offer superior execution and rebalancing efficiency compared to centralised exchanges, even with low fees.
Optimal investment with insurable background risk and nonlinear portfolio allocation frictionsq-fin.MF
Investment and insurance decisions are studied in a model with nonlinear portfolio frictions and background risk.
problem Investment and insurance decisions under a model with nonlinear portfolio frictions and background risk.
method Dynamic programming approach to find optimality conditions.
result Agent can choose to assume, partially assume, or purchase total insurance against adverse jumps in wealth.
Study finds cryptoasset markets inefficient due to capital reallocation frictions.
problem Inefficiency in cryptoasset markets due to capital reallocation frictions.
method Examined investments with dominant and secondary risk factors, derived equilibrium restrictions, and tested empirically.
result Empirical results strongly reject necessary equilibrium restrictions, indicating market inefficiency.
Optimal hedging of Derivatives with transaction costsphysics.soc-ph
We investigate the optimal strategy over a finite time horizon for a portfolio of stock and bond and a derivative in an multiplicative Markovian market model with transaction costs (friction). The optimization problem is solved by a Hamilton-Bellman-Jacobi equation, which by the verification theorem has well-behaved so…
Automatically balances blockchain network resources to boost market efficiency.
problem Extractable value leakage and execution frictions in blockchain networks.
method Systematically uses idle network resources for arbitrage, incentivizing transactions.
result Reduces network inventory risk while enhancing price formation and liquidity.
Repo dealers' market power affects bond prices by up to 2 percentage points.
problem Market power of repo dealers impacts bond prices and liquidity.
method Proprietary data on repo and reverse-repo trades analyzed.
result Market power of repo dealers accounts for 0.5-1.3 percentage points of bond yield deviation.
The paper models insurance market dynamics under uncertainty and financial frictions.
problem Modeling insurer behavior under uncertainty and financial frictions.
method Dynamic equilibrium model of insurance market with competitive insurers maximizing shareholder value.
result Investment can lead to lower insurance prices and negative loadings under certain conditions.
Affine Connection Approach to the Realization of Nonholonomic Constraints by Strong Friction Forcesmath-ph
Study on friction forces for nonholonomic systems using affine connections.
problem Realizing nonholonomic constraints with strong friction forces.
method Affine connection approach, covariant derivatives, recursive procedure.
result Approximations of slip velocities and dynamics up to second order.
Bitcoin's monetary velocity is constrained by network friction, leading to significant utility contraction during shocks.
problem Bitcoin's monetary velocity is limited by network congestion, causing significant utility loss during economic shocks.
method Empirical analysis using Transaction Cost Index and threshold regression to identify structural breaks and velocity contraction.
result Network friction significantly reduces Bitcoin's monetary velocity, leading to a net utility contraction of -9.39% during shocks.
Study shows GPT's earnings forecasts are human-like but not always accurate.
problem Information friction in AI-generated financial analysis.
method Examined GPT's earnings forecasts following corporate earnings releases and proposed a diagnostic framework.
result GPT's narrative attention is consistent and human-like but not always associated with higher forecast accuracy.
SPAC data shows premium investors get better terms, non-premium get quid pro quo deals.
problem Agency problems and informational frictions in securities issuance.
method Analysis of SPAC data to identify premium and non-premium investors.
result Non-premium investors engage in quid pro quo relationships with issuers and intermediaries.
We study superreplication of European contingent claims in discrete time in a large trader model with market indifference prices recently proposed by Bank and Kramkov. We introduce a suitable notion of efficient friction in this framework, adopting a terminology introduced by Kabanov, Rasonyi, and Stricker in the conte…
Financial Friction and Multiplicative Markov Market Gamecond-mat.stat-mech
We study long-term growth-optimal strategies on a simple market with linear proportional transaction costs. We show that several problems of this sort can be solved in closed form, and explicit the non-analytic dependance of optimal strategies and expected frictional losses of the friction parameter. We present one der…
New algorithms improve sampling from complex distributions.
problem Sampling from complex probability distributions efficiently.
method Regime-switching Langevin dynamics and Monte Carlo algorithms.
result Convergence guarantees and iteration complexities provided.
Investment strategy optimized in markets with transaction costs and search delays.
problem Maximizing wealth in an illiquid market with transaction costs and search frictions.
method Characterized no-trade region and provided asymptotic expansions of value function for small transaction costs.
result The effects of transaction costs are more pronounced in illiquid markets.
Model explains capital allocation and wealth distribution dynamics in a frictional economy.
problem Understanding capital allocation and wealth distribution dynamics in a frictional economy.
method Mean-field game approach to model interactions between expert and household groups.
result Experts accumulate capital during booms and quickly reverse behavior in busts, even without macro-shocks.
Weight Friction: A Simple Method to Overcome Catastrophic Forgetting and Enable Continual Learningcs.LG
In recent years, deep neural networks have found success in replicating human-level cognitive skills, yet they suffer from several major obstacles. One significant limitation is the inability to learn new tasks without forgetting previously learned tasks, a shortcoming known as catastrophic forgetting. In this research…
New friction model for geometric locomotion systems.
problem Modeling asymmetric friction in locomotion systems.
method Introducing asymmetric friction into geometric locomotion models using Finsler metrics.
result Generalized motility map for systems with asymmetric friction.
Emulator speeds up landslide run-out modeling sensitivity analysis.
problem Computational challenges in assessing landslide run-out model sensitivity.
method Gaussian process emulation integrated into r.avaflow.
result Strong interactions detected between friction coefficients and release volume.
Time-Aware Gated Recurrent Unit Networks for Road Surface Friction Prediction Using Historical Datacs.LG
An accurate road surface friction prediction algorithm can enable intelligent transportation systems to share timely road surface condition to the public for increasing the safety of the road users. Previously, scholars developed multiple prediction models for forecasting road surface conditions using historical data. …
Study high-frequency trading game with price impact, finding unique equilibrium.
problem Optimal execution in a trading game with transient price impact.
method Analyzes high-frequency limit of an -trader optimal execution game.
result High-frequency limit converges to a continuous-time model with quadratic costs.
Deep Hedging removes drift for cleaner option pricing.
problem Finding equivalent martingale measures in markets with frictions.
method Learning minimal near-martingale measures using deep learning.
result Clean hedges for exotic payoffs robust to estimation error.
Paper presents a modular RL framework for Forex trading, addressing limitations of prior studies.
problem Challenges in applying RL to Forex trading, including unrealistic environments, simplified rewards, and restricted action spaces.
method Integrates three components: a friction-aware execution engine, a decomposable reward architecture, and a discrete action interface.
result Empirical evaluation shows strong non-monotonic reward interactions and optimal Sharpe ratio with the full reward configuration.
A new framework for SPX and VIX hedging that combines AI and market dynamics.
problem Jointly hedging SPX and VIX exposures under transaction costs and regime shifts.
method Integrates an SSVI-based implied-volatility surface and a Cboe-compliant VIX computation with a control layer that enforces safety as constraints.
result Reduces expected shortfall while suppressing nuisance turnover in a reproducible synthetic environment.
OOM-RL uses financial market losses to align AI agents in autonomous systems.
problem Constrained alignment of autonomous software agents in live financial markets.
method Deploying agents in live financial markets to enforce strict test-driven workflows.
result Final OOM-RL-aligned system achieved a stable equilibrium with an annualized Sharpe ratio of 2.06.
The paper derives the QGS equations using stochastic central extensions.
problem Deriving the viscous quasi-geostrophic equations on the torus.
method Central extensions of Lie groups and Lie algebras, stochastic Lagrangian formulation, and Euler-Poincaré reduction.
result Stochastic perturbations to the central extension lead to solutions of the QGS equations.
Optimizes trading in markets with unpredictable price impacts.
problem Optimizing trading strategies in markets with stochastic price impacts.
method Singular perturbation methods to approximate optimal control problem.
result Proves approximations are accurate to specified order using sub- and super-solutions.
AGENTICAITA uses AI agents to autonomously trade markets without human intervention.
problem Inability of traditional trading systems to adapt to market complexity.
method Introduces an agentic AI framework with specialized LLM agents reasoning, negotiating, and acting.
result Demonstrated operational correctness and non-trivial inter-agent negotiation in live market conditions.
A Game of Competition for Riskq-fin.CP
Models analyze strategic risk-taking in continuous action games.
problem Strategic risk-taking dynamics in continuous action games.
method Normal form game, multi-player scenarios, regret minimization algorithms, numerical algorithm for calculation.
result Nash equilibrium also serves as a correlated equilibrium in continuous games.