Optimal posting price of limit orders: learning by trading

DOI10.1007/S11579-013-0096-7MaRDI QIDQ2392020zbMATH OpenOpenAlexFDO

Authors Sophie Laruelle, Charles-Albert Lehalle, Gilles Pagès

Publication date 6 August 2013

Published in Mathematics and Financial Economics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1112.2397

zbMATH Keywords

statistical learningstochastic approximationPoisson processmarket impactlimit orderorder bookco-monotony principlehigh-frequency optimal liquidation

Mathematics Subject Classification ID

Monte Carlo methods (65C05) Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Applications of statistics to actuarial sciences and financial mathematics (62P05) Numerical methods (including Monte Carlo methods) (91G60) Stochastic approximation (62L20)

Abstract: Considering that a trader or a trading algorithm interacting with markets during continuous auctions can be modeled by an iterating procedure adjusting the price at which he posts orders at a given rhythm, this paper proposes a procedure minimizing his costs. We prove the a.s. convergence of the algorithm under assumptions on the cost function and give some practical criteria on model parameters to ensure that the conditions to use the algorithm are fulfilled (using notably the co-monotony principle). We illustrate our results with numerical experiments on both simulated data and using a financial market dataset.

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Cited in

(17)

• Portfolio choice, portfolio liquidation, and portfolio transition under drift uncertainty
• Signing trades and an evaluation of the Lee-Ready algorithm
• Learning the optimal trading strategy
• Learning a functional control for high-frequency finance
• Trading algorithms with learning in latent alpha models
• Optimal execution in Hong Kong given a market-on-close benchmark
• Optimal liquidity-based trading tactics
• Algorithmic trading with learning
• Mean field game of controls and an application to trade crowding
• On two numerical problems in applied probability : discretization of Stochastic Differential Equations and optimization of an expectation depending on a parameter
• Adaptive importance sampling for multilevel Monte Carlo Euler method
• Real-time market microstructure analysis: online transaction cost analysis
• Optimal order placement in limit order markets
• Online Learning in Limit Order Book Trade Execution
• Importance sampling and statistical Romberg method for Lévy processes
• A closed-form execution strategy to target volume weighted average price
• On Stochastic Gradient Langevin Dynamics with Dependent Data Streams: The Fully Nonconvex Case

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