SSRN Author: Álvaro CarteaÁlvaro Cartea SSRN Content
https://www.ssrn.com/author=349872
https://www.ssrn.com/rss/en-usThu, 16 Dec 2021 01:28:30 GMTeditor@ssrn.com (Editor)Thu, 16 Dec 2021 01:28:30 GMTwebmaster@ssrn.com (WebMaster)SSRN RSS Generator 1.0REVISION: Optimal Cross-Border Electricity TradingWe show there exists a profitable cross-border trading strategy for an agent who trades electricity in the European electricity network. Data of the European markets are employed to show how electricity prices in all locations of the network are affected by the flow of power between any two locations that trade power between them. The optimal cross-border trading strategy is derived via the explicit solution of a non-trivial stochastic control problem in which prices at different locations are co-integrated and trading affects prices in all locations of the network.
https://www.ssrn.com/abstract=3506915
https://www.ssrn.com/2085204.htmlWed, 15 Dec 2021 19:43:42 GMTREVISION: Optimal Execution of Foreign Securities: A Double-Execution ProblemWe employ the expected signature of equity and foreign exchange markets to derive an optimal double-execution trading strategy. The signature of a path of a stochastic process is a sequence of real numbers that provides a full description of the evolution of the process. The double-execution strategy maximises the wealth (in units of the domestic currency) of an investor who liquidates a block of shares in a foreign stock market. Our approach is model agnostic because we do not specify the dynamics of the market. We prove that the optimal strategy is a linear combination of the terms in the expected signature of the market and employ high-frequency data from Nasdaq and for various currencies to compute the signature of the market. Data for ten stocks and four currency pairs are employed to implement the strategy. Our results show that the performance of the signature-based double-execution strategy is superior than the performance of the benchmarks. In most cases, the ...
https://www.ssrn.com/abstract=3562251
https://www.ssrn.com/2084089.htmlMon, 13 Dec 2021 14:13:32 GMTREVISION: Latency and Liquidity RiskLatency (i.e., time delay) in electronic markets affects the efficacy of liquidity taking strategies. During the time liquidity takers process information and send marketable limit orders (MLOs) to the exchange, the limit order book (LOB) might undergo updates, so there is no guarantee that MLOs are filled. We develop a latency-optimal trading strategy that improves the marksmanship of liquidity takers. The interaction between the LOB and MLOs is modelled as a marked point process. Each MLO specifies a price limit so the order can receive worse prices and quantities than those the liquidity taker targets if the updates in the LOB are against the interest of the trader. In our model, the liquidity taker balances the tradeoff between the costs of missing trades and the costs of walking the book. In particular, we show how to build cost-neutral strategies, that on average, trade price improvements for fewer misses. We employ techniques of variational analysis to obtain the price limit ...
https://www.ssrn.com/abstract=3433739
https://www.ssrn.com/2067812.htmlWed, 13 Oct 2021 00:25:31 GMTREVISION: Adaptive Robust Control in Continuous-TimeWe propose a continuous-time version of the adaptive robust methodology introduced in Bielecki et al. (2019). An agent solves a stochastic control problem where the underlying uncertainty follows a jump-diffusion process and the agent does not know the drift parameters of the process. The agent considers a set of alternative measures to make the control problem robust to model misspecification and employs a continuous-time estimator to learn the value of the unknown parameters to make the control problem adaptive to the arrival of new information. We use measurable selection theorems to prove the dynamic programming principle of the adaptive robust problem and show that the value function of the agent is characterised by a non-linear partial differential equation. As an example, we derive in closed-form the optimal adaptive robust strategy for an agent who acquires a large number of shares in an order-driven market and illustrates the financial performance of the execution ...
https://www.ssrn.com/abstract=3571991
https://www.ssrn.com/2044527.htmlThu, 22 Jul 2021 16:27:05 GMTREVISION: Ultra-Fast Activity and Intraday Market QualityThis paper studies the intraday relationship between ultra-fast machine-driven activity (UFA) and market quality in automated equity markets. We find that higher UFA is associated with lower intraday market quality (greater quoted and effective spreads and lower depth). This effect is economically significant, and robust to different specifications, endogeneity tests, and alternative measures of UFA. Our results hold after controlling for volatility, periods of unusually high UFA (a proxy for quote stuffing), and periods where UFA is primarily driven by fleeting orders inside the spread (a proxy for spoofing and competition between liquidity providers).
https://www.ssrn.com/abstract=2616627
https://www.ssrn.com/2044108.htmlWed, 21 Jul 2021 12:04:10 GMTREVISION: Adaptive Robust Control in Continuous-TimeWe propose a continuous-time version of the adaptive robust methodology introduced in Bielecki et al. (2019). An agent solves a stochastic control problem where the underlying uncertainty follows a jump-diffusion process and the agent does not know the drift parameters of the process. The agent considers a set of alternative measures to make the control problem robust to model misspecification and employs a continuous-time estimator to learn the value of the unknown parameters to make the control problem adaptive to the arrival of new information. We use measurable selection theorems to prove the dynamic programming principle of the adaptive robust problem and show that the value function of the agent is characterised by a non-linear partial differential equation. As an example, we derive in closed-form the optimal adaptive robust strategy for an agent who acquires a large number of shares in an order-driven market and illustrates the financial performance of the execution ...
https://www.ssrn.com/abstract=3571991
https://www.ssrn.com/2043830.htmlTue, 20 Jul 2021 18:43:38 GMTREVISION: Optimal Execution of Foreign Securities: A Double-Execution Problem with Signatures and Machine LearningWe employ the expected signature of equity and foreign exchange markets to derive an optimal double-execution trading strategy. The signature of a path of a stochastic process is a sequence of real numbers that provides a full description of the evolution of the process. The double-execution strategy maximises the wealth (in units of the domestic currency) of an investor who liquidates a block of shares in a foreign stock market. Our approach is model agnostic because we do not specify the dynamics of the market. We prove that the optimal strategy is a linear combination of the terms in the expected signature of the market and employ high-frequency data from Nasdaq and for various currencies to compute the signature of the market. Data for ten stocks and four currency pairs are employed to implement the strategy. Our results show that the performance of the signature-based double-execution strategy is superior than the performance of the benchmarks. In most cases, the ...
https://www.ssrn.com/abstract=3562251
https://www.ssrn.com/2022949.htmlMon, 10 May 2021 08:54:15 GMTREVISION: Optimal Execution of Foreign Securities: A Double-Execution Problem with Signatures and Machine LearningWe employ the expected signature of equity and foreign exchange markets to derive an optimal double-execution trading strategy. The signature of a path of a stochastic process is a sequence of real numbers that provides a full description of the evolution of the process. The double-execution strategy maximises the wealth in the domestic currency of an investor who liquidates a block of shares in a foreign stock market and the proceeds from the sale are exchanged into the investor's domestic currency. Our approach is model agnostic because we do not specify the dynamics of the market. We prove that the optimal strategy is a linear combination of the terms in the expected signature of the market and employ high-frequency data from Nasdaq and for various currencies to compute the signature of the market. Our results show that the signature-based double-execution strategy considerably outperforms various benchmarks that use single-execution strategies (one for the shares and one ...
https://www.ssrn.com/abstract=3562251
https://www.ssrn.com/2017958.htmlMon, 26 Apr 2021 09:18:29 GMTREVISION: Online Drift Estimation for Jump-Diffusion ProcessesWe show the convergence of an online stochastic gradient descent estimator to obtain the drift parameter of a continuous-time jump-diffusion process. The stochastic gradient descent follows a stochastic path in the gradient direction of a function to find a minimum, which in our case determines the estimate of the unknown drift parameter. We decompose the deviation of the stochastic descent direction from the deterministic descent direction into four terms: the weak solution of the non-local Poisson equation, a Riemann integral, a stochastic integral, and a covariation term. This decomposition is employed to prove the convergence of the online estimator and we use simulations to illustrate the performance of the online estimator.
https://www.ssrn.com/abstract=3540252
https://www.ssrn.com/1988298.htmlFri, 05 Feb 2021 08:36:20 GMT