arXiv · arXiv q-fin · 2025
Chae and Kang (2019, \textit{Pacific-Basin Finance Journal}) documented a puzzling Low Volume Return Premium (LVRP) in Korea -- contradicting global High Volume Return Premium (HVRP) evidence. We resolve this puzzle. Using Korean market data (2020-2024), we demonstrate that HVRP exists in Korea but is masked by (1) pooling heterogeneous investor types and (2) using inappropriate intensity normalization. When institut…
Sungwoo Kang
arXiv · arXiv q-fin · 2025
Financial markets are complex systems characterized by high statistical noise, nonlinearity, volatility, and constant evolution. Thus, modeling them is extremely hard. Here, we address the task of generating realistic and responsive Limit Order Book (LOB) market simulations, which are fundamental for calibrating and testing trading strategies, performing market impact experiments, and generating synthetic market data…
Leonardo Berti, Bardh Prenkaj, Paola Velardi
arXiv · arXiv q-fin · 2009
We have presented a novel technique of detecting intermittencies in a financial time series of the foreign exchange rate data of U.S.- Euro dollar(US/EUR) using a combination of both statistical and spectral techniques. This has been possible due to Continuous Wavelet Transform (CWT) analysis which has been popularly applied to fluctuating data in various fields science and engineering and is also being tried out in …
A. N. Sekar Iyengar
arXiv · arXiv q-fin · 2022
This paper describes multi-portfolio `internal' rebalancing processes used in the finance industry. Instead of trading with the market to `externally' rebalance, these internal processes detail how portfolio managers buy and sell between their portfolios to rebalance. We give an overview of currently used internal rebalancing processes, including one known as the `banker' process and another known as the `linear' pro…
Kelli Francis-Staite
arXiv · arXiv · 2026
Transient impact models compose a nonlinearity with a memory kernel, and the order of composition determines the criterion for absence of price manipulation. We classify both orders. If an arbitrary instantaneous law $f$ acts on the trading rate before any nonzero integrable Volterra kernel, nonnegative cost on every finite piecewise-constant round trip forces $f$ to be affine, and linear for every nonzero convolutio…
Minhyeok Lee
arXiv · arXiv q-fin · 2026
We consider an optimal trading problem under a market impact model with endogenous market resistance generated by a sophisticated trader who (partially) detects metaorders and trades against them to exploit price overreactions induced by the order flow. The model features a concave transient impact driven by a power-law propagator with a resistance term responding to the trader's rate via a fixed-point equation invol…
Nathan De Carvalho, Youssef Ouazzani Chahdi, Grégoire Szymanski
arXiv · arXiv q-fin · 2023
Automated market makers (AMMs) are a new prototype of decentralised exchanges which are revolutionising market interactions. The majority of AMMs are constant product markets (CPMs) where exchange rates are set by a trading function. This work studies optimal trading and statistical arbitrage in CPMs where balancing exchange rate risk and execution costs is key. Empirical evidence shows that execution costs are accur…
Álvaro Cartea, Fayçal Drissi, Marcello Monga
arXiv · arXiv q-fin · 2018
We study an optimal investment/consumption problem in a model capturing market and credit risk dependencies. Stochastic factors drive both the default intensity and the volatility of the stocks in the portfolio. We use the martingale approach and analyze the recursive system of nonlinear Hamilton-Jacobi-Bellman equations associated with the dual problem. We transform such a system into an equivalent system of semi-li…
Lijun Bo, Agostino Capponi
arXiv · arXiv q-fin · 2026
We extend the return extrapolation framework of Atmaz (2022) to incorporate two behaviorally realistic features absent from the linear benchmark: saturation in belief updating and asymmetry between gains and losses. We introduce a smooth, nonlinear, asymmetric extrapolation function and characterize the optimal portfolio of a CRRA investor under Heston (1993) stochastic volatility as the sum of a sentiment-distorted …
Dong Yan, Wenrui Ye, Zhiyue Zong, Wenting Chen
arXiv · arXiv q-fin · 2020
Optimal asset allocation is a key topic in modern finance theory. To realize the optimal asset allocation on investor's risk aversion, various portfolio construction methods have been proposed. Recently, the applications of machine learning are rapidly growing in the area of finance. In this article, we propose the Student's $t$-process latent variable model (TPLVM) to describe non-Gaussian fluctuations of financial …
Yusuke Uchiyama, Kei Nakagawa
arXiv · arXiv q-fin · 2014
We study the problem of the optimal execution of a large trade in the presence of nonlinear transient impact. We propose an approach based on homotopy analysis, whereby a well behaved initial strategy is continuously deformed to lower the expected execution cost. We find that the optimal solution is front loaded for concave impact and that its expected cost is significantly lower than that of conventional strategies.…
Gianbiagio Curato, Jim Gatheral, Fabrizio Lillo
arXiv · arXiv q-fin · 2014
A novel optimisation framework through quadratic nonlinear projection is introduced for credit portfolio when the portfolio risk is measured by Conditional Value-at-Risk (CVaR). The whole optimisation procedure to search toward the optimal portfolio state is conducted by a series of single-step optimisations under the local constraints described in the multi-dimensional constraint parameter space as functions of the …
Boguk Kim, Chulwoo Han, Frank Chongwoo Park
arXiv · arXiv q-fin · 2011
We consider the optimal trade execution strategies for a large portfolio of single stocks proposed by Almgren (2003). This framework accounts for a nonlinear impact of trades on average market prices. The results of Almgren (2003) are based on the assumption that no shares of assets per unit of time are trade at the beginning of the period. We propose a general solution method that accomodates the case of a positive …
Massimiliano Marzo, Daniele Ritelli, Paolo Zagaglia
arXiv · arXiv q-fin · 2011
We develop from basic economic principles a continuous-time model for a large investor who trades with a finite number of market makers at their utility indifference prices. In this model, the market makers compete with their quotes for the investor's orders and trade among themselves to attain Pareto optimal allocations. We first consider the case of simple strategies and then, in analogy to the construction of stoc…
Peter Bank, Dmitry Kramkov
arXiv · arXiv q-fin · 2009
We study an optimal execution problem in a continuous-time market model that considers market impact. We formulate the problem as a stochastic control problem and investigate properties of the corresponding value function. We find that right-continuity at the time origin is associated with the strength of market impact for large sales, otherwise the value function is continuous. Moreover, we show the semi-group prope…
Takashi Kato
arXiv · arXiv q-fin · 2003
We mathematically analyze a simple market model where trading at each point in time involves only two agents with the sum of their money being conserved and with neither parties resulting with negative money after the interaction process. The exchange involves random re-distribution among the two players of a fixed fraction of their total money. We obtain a simple integral nonlinear equation for the money distributio…
Arnab Das, Sudhakar Yarlagadda