arXiv research

Investment strategy optimized in markets with transaction costs and search delays.

Using elementary arguments, we show how to derive $\mathbf{L}_p$-error bounds for the approximation of frictionless wealth process in markets with proportional transaction costs. For utilities with bounded risk aversion, these estimates yield lower bounds for the frictional value function, which pave the way for its as…

Two major financial market complexities are transaction costs and uncertain volatility, and we analyze their joint impact on the problem of portfolio optimization. When volatility is constant, the transaction costs optimal investment problem has a long history, especially in the use of asymptotic approximations when th…

We revisit the optimal investment and consumption problem with proportional transaction costs. We prove that both the value function and the slopes of the lines demarcating the no-trading region are analytic functions of cube root of the transaction cost parameter. Also, we can explicitly calculate the coefficients of …

Equilibrium found for multi-agent trading with transaction costs.

Optimizes portfolios with costs, showing existence of optimal strategies.

Modeling insider trading with transaction costs and fair pricing.

Study optimal investment and consumption strategies with various transaction costs.

We study optimal investment problems under the framework of cumulative prospect theory (CPT). A CPT investor makes investment decisions in a single-period financial market with transaction costs. The objective is to seek the optimal investment strategy that maximizes the prospect value of the investor's final wealth. W…

Study portfolio selection with exogenous and endogenous transaction costs using deep learning.

We employ perturbation analysis technique to study multi-asset portfolio optimisation with transaction cost. We allow for correlations in risky assets and obtain optimal trading methods for general utility functions. Our analytical results are supported by numerical simulations in the context of the Long Term Growth Mo…

We present an expansion for portfolio optimization in the presence of small, instantaneous, quadratic transaction costs. Specifically, the magnitude of transaction costs has a coefficient that is of the order $ε$ small, which leads to the optimization problem having an asymptotically-singular Hamilton-Jacobi-Bellman eq…

We consider an agent who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of a proportional transaction cost. The utility function considered is power utility. We provide a heuristic and a rigorous derivation of the asymptotic ex…

In this paper the valuation problem of a European call option in presence of both stochastic volatility and transaction costs is considered. In the limit of small transaction costs and fast mean reversion, an asymptotic expression for the option price is obtained. While the dominant term in the expansion it is shown to…

The electronic platform has been increasingly popular for executing large corporate bond orders by asset managers, who in turn have to assess the quality of their executions via Transaction Cost Analysis (TCA). One of the challenges in TCA is to build a realistic benchmark for the expected transaction cost and to chara…

Develops a new model to optimize trading in markets.

Transaction costs appear in financial markets in more than one form. There are several results in the literature on small proportional transaction cost and not that many on fixed transaction cost. In the present work, we heuristically study the effect of both types of transaction cost by focusing on a portfolio optimiz…

We consider the problem of option hedging in a market with proportional transaction costs. Since super-replication is very costly in such markets, we replace perfect hedging with an expected loss constraint. Asymptotic analysis for small transactions is used to obtain a tractable model. A general expansion theory is de…

Paper analyzes liquidity for everlasting options in DeFi, offering strategies to reduce costs.

Study how transaction costs impact stock returns and holdings in equilibrium.

In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason lies in the specification of the budget constraint, which is no longer linear. We …

The paper optimizes portfolios with transaction costs in a large asset universe.

The paper analyzes transaction fees on blockchains using a priority queue model.

We price a contingent claim liability using the utility indifference argument. We consider an agent with exponential utility, who invests in a stock and a money market account with the goal of maximizing the utility of his investment at the final time T in the presence of positive proportional transaction cost in two c…

Improved option pricing model with transaction costs.

The study examines pricing American options with both exogenous and endogenous transaction costs.

Investigates how trading boundaries change with transaction costs in portfolio selection.

We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions -- price impact and transaction costs -- lead the agents to two distinct changes in their optimal investment approach: price impact causes a…

We consider a Nash equilibrium between two high-frequency traders in a simple market impact model with transient price impact and additional quadratic transaction costs. Extending a result by Schöneborn (2008), we prove existence and uniqueness of the Nash equilibrium and show that for small transaction costs the high-…

The aim of this work is to extend the capital growth theory developed by Kelly, Breiman, Cover and others to asset market models with transaction costs. We define a natural generalization of the notion of a numeraire portfolio proposed by Long and show how such portfolios can be used for constructing growth-optimal inv…

Unified asymptotics for investment in markets with transaction costs and search frictions.

A well known result in stochastic analysis reads as follows: for an $\mathbb{R}$-valued super-martingale $X = (X_t)_{0\leq t \leq T}$ such that the terminal value $X_T$ is non-negative, we have that the entire process $X$ is non-negative. An analogous result holds true in the no arbitrage theory of mathematical finance…

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 fixed transaction costs. We prove that in the continuous time Black--Scholes (BS) mo…

Study on-chain peak shaving to reduce Ethereum transaction costs.

The effect of proportional transaction costs on systematically generated portfolios is studied empirically. The performance of several portfolios (the index tracking portfolio, the equally-weighted portfolio, the entropy-weighted portfolio, and the diversity-weighted portfolio) in the presence of dividends and transact…

This paper proposes a new method to optimize portfolio allocation with transaction costs using Wiener chaos expansion.

We study superhedging of contingent claims with physical delivery in a discrete-time market model with convex transaction costs. Our model extends Kabanov's currency market model by allowing for nonlinear illiquidity effects. We show that an appropriate generalization of Schachermayer's robust no arbitrage condition im…

In this paper, asymptotic results in a long-term growth rate portfolio optimization model under both fixed and proportional transaction costs are obtained. More precisely, the convergence of the model when the fixed costs tend to zero is investigated. A suitable limit model with purely proportional costs is introduced …

We theoretically and empirically study portfolio optimization under transaction costs and establish a link between turnover penalization and covariance shrinkage with the penalization governed by transaction costs. We show how the ex ante incorporation of transaction costs shifts optimal portfolios towards regularized …

We study the arbitrage opportunities in the presence of transaction costs in a sequence of binary markets approximating the fractional Black-Scholes model. This approximating sequence was constructed by Sottinen and named fractional binary markets. Since, in the frictionless case, these markets admit arbitrage, we aim …

We prove the existence of a Radner equilibrium in a model with proportional transaction costs on an infinite time horizon and analyze the effect of transaction costs on the endogenously determined interest rate. Two agents receive exogenous, unspanned income and choose between consumption and investing into an annuity.…

Revisits superhedging under proportional costs in continuous time markets.

The paper bridges stochastic control and deep hedging for European call options with transaction costs.

Investigates portfolio selection with transaction costs and stochastic volatility, using deep learning for computation.

We consider fractional Black-Scholes market with proportional transaction costs. When transaction costs are present, one trades periodically i.e. we have the discrete trading with equidistance $n^{-1}$ between trading times. We derive a non trivial hedging error for a class of European options with convex payoff in the…

This paper tackles cost-sensitive portfolio optimization under ambiguous return distributions.

We study a single risky financial asset model subject to price impact and transaction cost over an infinite horizon. An investor needs to execute a long position in the asset affecting the price of the asset and possibly incurring in fixed transaction cost. The objective is to maximize the discounted revenue obtained b…

We study shortfall risk minimization for American options with path dependent payoffs under proportional transaction costs in the Black--Scholes (BS) model. We show that for this case the shortfall risk is a limit of similar terms in an appropriate sequence of binomial models. We also prove that in the continuous time …