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Optimal trading with online parameters revisions

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BBD16Market.pdf (1.717Mb)
Date
2016
Dewey
Probabilités et mathématiques appliquées
Sujet
Optimal trading; market impact; uncertainty; Bayesian filtering
JEL code
D.D5.D53
Journal issue
Market Microstructure and Liquidity
Volume
2
Number
03n04
Publication date
2016
Article pages
27
DOI
http://dx.doi.org/10.1142/S2382626617500034
URI
https://basepub.dauphine.fr/handle/123456789/17072
Collections
  • CEREMADE : Publications
Metadata
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Author
Baradel, Nicolas
Bouchard, Bruno
Dang, Ngoc Minh
Type
Article accepté pour publication ou publié
Abstract (EN)
The aim of this paper is to explain how parameters adjustments can be integrated in the design or the control of automates of trading. Typically, we are interested by the online estimation of the market impacts generated by robots or single orders, and how they/the controller should react in an optimal way to the informations generated by the observation of the realized impacts. This can be formulated as an optimal impulse control problem with unknown parameters, on which a prior is given. We explain how a mix of the classical Bayesian updating rule and of optimal control techniques allows one to derive the dynamic programming equation satisfied by the corresponding value function, from which the optimal policy can be inferred. We provide an example of convergent finite difference scheme and consider typical examples of applications.

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