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Economic Modeling for Optimal Trading of Financial Asset in Volatile Market

Author

Listed:
  • Edward W. Sun

    (KEDGE Business School France)

  • Timm Kruse

    (School of Mathematics, Karlsruhe Institute of Technology (KIT), Germany)

Abstract

We build an optimal trading model for submitting market orders in volatile market. We show some analytical properties of our computational solution. We conduct numerical simulations to investigate the model performance. In comparison with other two alternative models, the simulation results show that the performance of our model is generally superior, particularly when the market turns to be extremely bullish or bearish.

Suggested Citation

  • Edward W. Sun & Timm Kruse, 2013. "Economic Modeling for Optimal Trading of Financial Asset in Volatile Market," Economics Bulletin, AccessEcon, vol. 33(3), pages 1788-1795.
    • Handle: RePEc:ebl:ecbull:eb-12-00627
    as

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    File URL: http://www.accessecon.com/Pubs/EB/2013/Volume33/EB-13-V33-I3-P168.pdf
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    References listed on IDEAS

    as
    1. Aur'elien Alfonsi & Antje Fruth & Alexander Schied, 2007. "Optimal execution strategies in limit order books with general shape functions," Papers 0708.1756, arXiv.org, revised Feb 2010.
    2. Alexander Schied & Torsten Schöneborn, 2009. "Risk aversion and the dynamics of optimal liquidation strategies in illiquid markets," Finance and Stochastics, Springer, vol. 13(2), pages 181-204, April.
    3. Obizhaeva, Anna A. & Wang, Jiang, 2013. "Optimal trading strategy and supply/demand dynamics," Journal of Financial Markets, Elsevier, vol. 16(1), pages 1-32.
    4. Christopher Ting, 2006. "Which Daily Price is Less Noisy?," Financial Management, Financial Management Association International, vol. 35(3), pages 81-95, September.
    5. Chiraphol N. Chiyachantana & Pankaj K. Jain & Christine Jiang & Robert A. Wood, 2004. "International Evidence on Institutional Trading Behavior and Price Impact," Journal of Finance, American Finance Association, vol. 59(2), pages 869-898, April.
    6. Aurelien Alfonsi & Antje Fruth & Alexander Schied, 2010. "Optimal execution strategies in limit order books with general shape functions," Quantitative Finance, Taylor & Francis Journals, vol. 10(2), pages 143-157.
    7. Christopher Ting, 2006. "Which Daily Price is Less Noisy?," Financial Management, Financial Management Association, vol. 35(3), Autumn.
    8. Michael A. Goldstein & Paul Irvine & Eugene Kandel & Zvi Wiener, 2009. "Brokerage Commissions and Institutional Trading Patterns," Review of Financial Studies, Society for Financial Studies, vol. 22(12), pages 5175-5212, December.
    9. Robert Almgren, 2003. "Optimal execution with nonlinear impact functions and trading-enhanced risk," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(1), pages 1-18.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Edward Sun & Timm Kruse & Min-Teh Yu, 2015. "Financial Transaction Tax: Policy Analytics Based on Optimal Trading," Computational Economics, Springer;Society for Computational Economics, vol. 46(1), pages 103-141, June.

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    More about this item

    Keywords

    Discrete optimization; Liquidity; Optimal execution; Geometric Brownian motion;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • C0 - Mathematical and Quantitative Methods - - General

    Statistics

    Access and download statistics

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