Hedge and speculate: replicating option payoffs with limit and market orders

DOI10.1137/18M1192706;zbMATH Open1427.91268MaRDI QIDQ4971981FDOQ4971981

Authors: Álvaro Cartea, Luhui Gan, Sebastian Jaimungal 

Publication date: 22 November 2019

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL: https://epubs.siam.org/doi/pdf/10.1137/18M1192706

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zbMATH Keywords

high-frequency tradingmarket impactoptimal hedgingimpulse controlalgorithmic trading

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Stopping times; optimal stopping problems; gambling theory (60G40)

Cites Work

• Continuous-time stochastic control and optimization with financial applications
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• High-frequency trading in a limit order book
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• HEDGING AND PORTFOLIO OPTIMIZATION UNDER TRANSACTION COSTS: A MARTINGALE APPROACH¹²
• Optimal execution with limit and market orders
• Hedging with temporary price impact
• Risk metrics and fine tuning of high-frequency trading strategies
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• Large Investor Trading Impacts on Volatility
• Liquidity risk, price impacts and the replication problem
• Curve following in illiquid markets
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• Simulations of transaction costs and optimal rehedging
• Optimal market making
• Hedging of covered options with linear market impact and gamma constraint
• The financial mathematics of market liquidity. From optimal execution to market making

Cited In (5)

• Group classification for a class of non-linear models of the RAPM type
• A Leland model for delta hedging in central risk books
• ELS pricing and hedging in a fractional Brownian motion environment
• Optimal accelerated share repurchases
• On measuring the cost of liquidity in the limit order book

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