Author: Somayeh Moazeni
Publisher:
ISBN:
Category :
Languages : en
Pages : 24
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Book Description
Arguments on the existence of dynamic arbitrage and price manipulation strategies are often invoked to guide modeling price impacts of large trades. We revisit the concept of dynamic arbitrage in illiquid markets in the presence of time-varying stochastic price impact functions and a broad class of market price dynamics. We first establish a sufficient condition under which searching in the space of $ mathcal F_{0}$-measurable admissible round-trip trades is enough to attain a no-dynamic arbitrage certificate. This result simplifies identifying price impact structures that rule out dynamic arbitrage and supports the analysis in some existing literature, where its assessment is limited to the search in the set of $ mathcal F_{0}$-measurable round-trip trades. For time-varying stochastic linear price impact functions, we show that this condition is necessary and sufficient for the absence of dynamic arbitrage. The present quantitative analysis implies that a trader's opinion on the existence of dynamic arbitrage opportunities for a price impact model depends on his belief about expected future price changes and expected future price impacts, which can be revised over time by the collection of new information. This motivates us to let the existence of such arbitrage opportunities depend not only on the trader's belief about expected price movements but also on his risk attitude. We thus introduce the concept of risk-averse dynamic arbitrage using a general time-consistent dynamic risk measure and a risk-aversion threshold level. Similar sufficient conditions are studied under which searching in the space of static round-trip trades enables us to conclude on no-risk-averse dynamic arbitrage.
Author: Jun Liu
Publisher:
ISBN:
Category :
Languages : en
Pages : 61
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Book Description
In theory, an investor can make infinite profits by taking unlimited positions in an arbitrage. In reality, however, investors must satisfy margin requirements which completely change the economics of arbitrage. We derive the optimal investment policy for a risk-averse investor in a market where there are arbitrage opportunities. We show that is is often optimal to underinvest in the arbitrage by taking a smaller position than margin constraints allow. In some cases, it is actually optimal for an investor to walk away from a pure arbitrage opportunity. Even when the optimal policy is followed, the arbitrage strategy may underperform the riskless asset to have an unimpressive Sharpe ratio. Furthermore, the arbitrage portfolio typically experiences losses at some point before the final convergence date. These results have important implications for the role of arbitrageurs in financial markets.
Author: Vincent Fardeau
Publisher:
ISBN:
Category :
Languages : en
Pages : 64
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Book Description
Many arbitrage strategies are dominated by a few large arbitrageurs who recognize their price impact. I model arbitrageurs as imperfectly competitive intermediaries facilitating risk-sharing between two clienteles of competitive investors. I show that in the presence of market power, i) anticipated supply shocks generate time-series momentum and reversals around the realization of the shocks, ii) negative supply shocks can trigger counterintuitive changes in the sign of liquidity premia, and iii) more risk-averse arbitrageurs may provide more liquidity. Further, a higher trading frequency increases market depth.
Author: Matheus R. Grasselli
Publisher: World Scientific
ISBN: 9814407895
Category : Business & Economics
Languages : en
Pages : 598
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Book Description
This outstanding collection of articles includes papers presented at the Fields Institute, Toronto, as part of the Thematic Program in Quantitative Finance that took place in the first six months of the year 2010. The scope of the volume is very broad, with papers on foundational issues in mathematical finance, papers on computational finance, and papers on derivatives and risk management. Many of the articles contain path-breaking insights that are relevant to the developing new order of post-crisis financial risk management.
Author: Barney Hartman-Glaser
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
We consider a firm with infrequent access to capital markets, continuous access to financing by a risk-averse intermediary, and a cost of holding cash. The intermediary absorbs a fraction of cash-flow risk that decreases with the firm's liquidity reserves and acquires a stake in the firm under distress. Implementing the optimal contract suggests an overlapping pecking order. The firm simultaneously finances shortfalls with cash reserves and a credit line and sells equity to the intermediary when it runs out of cash. The model helps explain empirical facts and trends in financial intermediation, such as the rise of private equity.
Author: Julia Di Nunno
Publisher: Springer Science & Business Media
ISBN: 364218412X
Category : Mathematics
Languages : en
Pages : 532
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Book Description
This book presents innovations in the mathematical foundations of financial analysis and numerical methods for finance and applications to the modeling of risk. The topics selected include measures of risk, credit contagion, insider trading, information in finance, stochastic control and its applications to portfolio choices and liquidation, models of liquidity, pricing, and hedging. The models presented are based on the use of Brownian motion, Lévy processes and jump diffusions. Moreover, fractional Brownian motion and ambit processes are also introduced at various levels. The chosen blend of topics gives an overview of the frontiers of mathematics for finance. New results, new methods and new models are all introduced in different forms according to the subject. Additionally, the existing literature on the topic is reviewed. The diversity of the topics makes the book suitable for graduate students, researchers and practitioners in the areas of financial modeling and quantitative finance. The chapters will also be of interest to experts in the financial market interested in new methods and products. This volume presents the results of the European ESF research networking program Advanced Mathematical Methods for Finance.
Author: Thai Ha-huy
Publisher:
ISBN:
Category :
Languages : en
Pages : 26
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Book Description
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 35
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Book Description
Author: Leandros A. Maglaras
Publisher: Springer Nature
ISBN: 3031610377
Category :
Languages : en
Pages : 485
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Book Description
Author: Mukarram Attari
Publisher:
ISBN:
Category :
Languages : en
Pages : 38
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Book Description
This paper derives arbitrage trading strategies taking into account the fact that the actions of arbitrageurs impact prices. This avoids the difficulty of having to rely on exogenous position limits to prevent infinite arbitrage profits. When arbitrageurs are financially constrained their trading strategies can be expressed as feedback functions of their capital, which in turn depends on the optimal amount traded. An important component of the trading by financially constrained arbitrageurs is done to guarantee future financial flexibility. It is this hedging component that explains why price deviations persist in spite of arbitrage. Financial constraints are also responsible for periods of excessively volatile prices and for the time variation in the correlation of price deviation across markets. The fact that the actions of regulated firms can influence the dynamics of prices on which minimum capital requirements are based raises important implications for the regulation of securities firms.
