The paper analyzes option pricing with variable transaction costs using a nonlinear model.
problem Analyzing option pricing under variable transaction costs with nonlinear dynamics.
method Transformation of a fully nonlinear parabolic equation into a quasilinear one, existence of classical smooth solutions, numerical approximation.
result Existence of classical smooth solutions and useful bounds on option prices.
Paper solves investment problem with transaction costs using spectral method.
problem Optimal investment problem with transaction costs under potential utility.
method Spectral numerical method applied to a reformulated parabolic double obstacle problem.
result Spectral method proves more efficient for high precision solutions.
This research extends Leland's work to multi-asset options with variable transaction costs.
problem Pricing multi-asset options with variable transaction costs.
method Generalized Leland's condition, proved existence of viscosity solution using Perron method, developed numerical ADI scheme.
result Existence of a viscosity solution for the fully nonlinear initial value problem.
Study on investment and consumption strategy with transaction costs, focusing on a single illiquid asset.
problem Investment and consumption problem with transaction costs.
method Specialized to a case with zero transaction costs except for sales and purchases of a single asset, transformed HJB equation into a boundary value problem.
result Optimal trading strategy involves trading the illiquid asset only when its fraction of the total portfolio value falls outside a fixed interval.
Sharp asymptotic lower bounds of the expected quadratic variation of discretization error in stochastic integration are given. The theory relies on inequalities for the kurtosis and skewness of a general random variable which are themselves seemingly new. Asymptotically efficient schemes which attain the lower bounds a…
New RL method improves financial index tracking accuracy.
problem Optimizing financial index tracking with dynamic market information.
method Discrete-time dynamic model, Banach fixed point iteration, deep reinforcement learning.
result Proposed RL method outperforms benchmarks in tracking accuracy.
We adapt a model for bilateral counterparty risk to include transaction costs.
problem Modeling bilateral counterparty risk with transaction costs.
method Derived a nonlinear PDE, proved existence of solution, developed numerical scheme.
result Existence of solution to the PDE with transaction costs.
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…
The study examines portfolio optimization with quadratic transaction costs, complicating the optimization process.
problem Portfolio optimization with quadratic transaction costs is more challenging than with linear costs.
method Introduced numerical algorithms to solve the optimization problem with quadratic transaction costs.
result Quadratic transaction costs significantly impact the expected returns of optimized portfolios.
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 shows how price impact and transaction costs affect trading behavior and profits.
problem Analyzing trading behavior and profits in markets with transaction costs and price impact.
method Proves the existence of an equilibrium in a model with transaction costs and price impact.
result Existence of a strictly positive optimal transaction cost from the exchange's perspective.
Examines how transaction costs affect systematic portfolios.
problem Impact of proportional transaction costs on systematic portfolios.
method Empirical study with various portfolio types and configurations.
result Proposes a method to smooth transaction costs.
Study how transaction costs impact stock returns and holdings in equilibrium.
problem Impact of quadratic transaction costs on equilibrium stock returns and holdings.
method Developed a continuous-time risk-sharing model with FBSDEs to characterize equilibrium stock holdings and trading rates.
result Equilibrium stock holdings and trading rates are uniquely determined by FBSDEs, and equilibrium return by a system of coupled FBSDEs.
The paper optimizes portfolios with transaction costs in a large asset universe.
problem Optimizing portfolios with transaction costs in a large asset universe.
method Mean-variance optimization with nonconvex penalty for proportional and quadratic transaction costs.
result The proposed models show satisfactory performance and highlight the importance of transaction costs.
The study examines pricing American options with both exogenous and endogenous transaction costs.
problem Pricing American options with transaction costs and liquidity risks.
method Modeling liquidity risks as a mean-reverting process and transaction costs as proportional to trading amount. Two nonlinear PDEs are used to characterize option values. Numerical solution via ADI method and model calibration using maximum likelihood estimation.
result The model incorporating liquidity risks significantly outperforms the Leland model.
Improved option pricing model with transaction costs.
problem Inaccurate option pricing without considering transaction costs.
method Developed a replicating strategy with exponentially decreasing transaction costs.
result Validated the effectiveness of the new model through simulations.
Existence of equilibrium proven in model with transaction costs.
problem Proving existence of Radner equilibrium in a model with transaction costs.
method Discrete-time equilibrium followed by continuous-time equilibrium analysis.
result Explicit formula for equilibrium interest rate derived.
Investigates how trading boundaries change with transaction costs in portfolio selection.
problem Investigates how trading boundaries vary with transaction costs in portfolio selection.
method Analyzes Merton's problem with proportional transaction costs, showing monotonicity of trading boundaries.
result Cost-adjusted trading boundaries are monotone in transaction costs, with implications for the Merton line.
The study optimizes portfolios under transaction costs and model uncertainty, showing the effectiveness of turnover penalization.
problem Optimizing portfolios under transaction costs and model uncertainty.
method Theoretical and empirical analysis linking turnover penalization to covariance shrinkage, incorporating transaction costs and parameter uncertainty.
result Turnover penalization is more effective than shrinkage methods in constructing well-performing portfolios.
This paper studies risk measures on markets with transaction costs.
problem Risk measures on markets with proportional transaction costs.
method Introduces strategy effectiveness and shortfall risk.
result Generalizes quantile hedging approach.
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-…
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.
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…
Survey on portfolio choice with small transaction costs using asymptotic methods.
problem Portfolio choice problems with small transaction costs.
method Derive dynamic programming equations, simplify in small-cost limit, and use policy iteration for complex models.
result Explicit solutions for various models, including mean-reverting returns and proportional costs.
Solves investment and consumption problem with transaction costs.
problem Investment and consumption decisions in markets with transaction costs.
method Complete solution via differential equation, focusing on boundary behavior.
result Boundary behavior of sales of risky asset is independent of transaction costs for some parameter values and large costs.
The paper addresses hedging Asian options with transaction costs using asymptotic hedging.
problem Hedging Asian options in markets with transaction costs.
method Asymptotic hedging approach.
result Probability convergence of investment portfolio value to payment function as revision count approaches infinity.
Study on-chain peak shaving to reduce Ethereum transaction costs.
problem Reducing transaction costs in blockchain networks, especially during congested periods.
method Analyzing transaction-level data from multiple firms across various industries to understand scheduling responses and cost management strategies.
result Firms' scheduling responses to congestion vary, leading to different fee savings and residual costs.
Study asset pricing with transaction costs, showing unique equilibrium exists.
problem Risk-sharing economies with heterogeneous agents trading under quadratic transaction costs.
method Characterizes equilibrium asset prices and strategies via nonlinear, fully-coupled equations.
result Unique solution exists when agents' preferences are sufficiently similar, and empirical liquidity premia and discounts match transaction costs and volatility.
Extended fundamental theorem of asset pricing with transaction costs.
problem Modeling arbitrage in models with both fixed and proportional transaction costs.
method Introducing a family of measures and an adapted process to extend the fundamental theorem.
result Equivalence between lack of arbitrage and existence of specific probability measures.
The paper defines and analyzes scalar risk measures in markets with transaction costs.
problem Defining and analyzing scalar risk measures in markets with transaction costs.
method Dual representation of scalar risk measures, time consistency, backward recursion.
result A weaker notion of time consistency for scalar risk measures in markets with frictions is defined and proven equivalent to a backward recursion.
This paper proposes a new method to optimize portfolio allocation with transaction costs using Wiener chaos expansion.
problem Optimizing portfolio allocation with transaction costs in multi-period settings.
method Wiener chaos expansion approach to represent and solve the optimization problem.
result The proposed method finds an optimal strategy for portfolio allocation with transaction costs.
Optimal strategies found for investors in markets with transaction costs.
problem Maximizing utility in markets with proportional transaction costs.
method Existence of optimal strategies proved under appropriate assumptions.
result Existence of optimal strategies for maximizing worst-case utility.
Study prices currency options using fractional delta hedging with transaction costs.
problem Pricing European currency options with transaction costs in fractional Black Scholes model.
method Applied delta hedging strategy to derive pricing formula and PDE.
result Fractional Black Scholes model with transaction costs is a satisfactory model.
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 …
Investment and consumption strategies optimized with transaction costs.
problem Optimal investment and consumption strategies with transaction costs.
method Weak dynamic programming and comparison of viscosity solutions.
result Detailed numerical experiments illustrate properties of optimal strategies.
The paper develops an expansion for optimizing portfolios with small quadratic transaction costs.
problem Optimizing portfolios with small, instantaneous, quadratic transaction costs.
method Develops an asymptotic expansion for the Hamilton-Jacobi-Bellman equation.
result Derives explicit formulae for the first two terms of the expansion.
Simple bounds derived for utility maximization in markets with small transaction costs.
problem Maximizing utility in markets with proportional transaction costs.
method Elementary arguments and Malliavin calculus to derive error bounds and regularity conditions.
result Lower bounds for frictional value function and sufficient conditions for optimal trading strategies.
The paper bridges stochastic control and deep hedging for European call options with transaction costs.
problem Hedging and pricing European call options with proportional transaction costs.
method Complementary perspectives: stochastic control and deep hedging. Two architectures proposed: NTBN-Delta and WW-NTBN.
result WW-NTBN converges faster, matches no-transaction bands more closely, and generalizes well across transaction cost regimes.
Investigates portfolio selection with transaction costs and stochastic volatility, using deep learning for computation.
problem Optimal portfolio selection with transaction costs and stochastic volatility.
method Two-factor stochastic volatility model, option-implied utility function, deep learning policy iteration.
result Deep learning method effectively computes optimal investment decisions under transaction costs and stochastic volatility.
Study optimizes investment and claim valuation with transaction costs and disutility.
problem Optimizing contingent claim valuation with transaction costs and disutility.
method Dual representation and dynamic procedure for solving disutility minimization problem, leading to efficient numerical procedures.
result Efficient and convergent numerical procedures for indifference pricing, optimal trading strategies, and shadow prices.
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…
Modeling insider trading with transaction costs and fair pricing.
problem Maximizing profits for an informed trader in a market with transaction costs and fair pricing.
method Single auction model and continuous time analogue, analyzing equilibrium behavior with polynomial and differential equations.
result Equilibrium trading strategy and pricing rules are affected by transaction costs, revealing an information gap.
This paper tackles cost-sensitive portfolio optimization under ambiguous return distributions.
problem Tackles cost-sensitive distributionally robust log-optimal portfolio problem with ambiguous return distributions.
method Uses Wasserstein metric for distributional ambiguity, incorporates convex transaction costs, and approximates infinite-dimensional problem with finite convex program.
result Establishes conditions for robustly survivable trades and validates theoretical framework with empirical studies.
Equilibrium found for multi-agent trading with transaction costs.
problem Designing a trading equilibrium for multiple agents with transaction costs.
method Proving the existence of a continuous-time Radner equilibrium with incentives and transaction costs.
result Each agent optimally trades for a specific time interval before stopping, influenced by transaction costs.
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…
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…
Study analyzes market equilibrium returns with price impact and transaction costs.
problem Modeling equilibrium returns in markets with strategic order placement and transaction costs.
method Analyzes frictionless and transaction-cost markets, characterizes Nash equilibrium via FBSDEs.
result Equilibrium returns are affected by transaction costs, especially with noise traders.
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 …