Optimal trading with signals and stochastic price impact

DOI10.1137/21M1394473MaRDI QIDQ5097223zbMATH OpenOpenAlexFDO

Authors Jean-Pierre Fouque, Sebastian Jaimungal, Yuri F. Saporito

Publication date 22 August 2022

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

Full work available at URL https://arxiv.org/abs/2101.10053

zbMATH Keywords

algorithmic tradingmultiscale modelingnonlinear PDEsingular perturbation

Mathematics Subject Classification ID

Singular perturbations of ordinary differential equations (34D15) Financial markets (91G15) Optimal stochastic control (93E20)

Abstract: Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem using singular perturbation methods. We prove, by constructing sub- and super-solutions, that the approximations are accurate to the specified order. Finally, we perform some numerical experiments to illustrate the effect that stochastic trading frictions have on optimal trading.

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Cited in

(13)

• Incorporating signals into optimal trading
• Optimal control of trading algorithms: a general impulse control approach
• scientific article; zbMATH DE number 686947 (Why is no real title available?)
• scientific article; zbMATH DE number 910904 (Why is no real title available?)
• Optimal Signal-Adaptive Trading with Temporary and Transient Price Impact
• INFORMED OPPORTUNISTIC TRADING AND PRICE OPTIMAL CONTROL
• Optimal Execution: A Review
• Optimal trading with transaction costs and short-term predictability
• Optimal trading and competition with information in the price impact model
• Optimal Trade Execution Strategy and Implementation with Deterministic Market Impact Parameters
• Reinforcement Learning for Optimal Execution When Liquidity Is Time-Varying
• Trade Execution Games in a Markovian Environment
• Optimal liquidation under indirect price impact with propagator

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