Optimal Trading with Signals and Stochastic Price Impact

Jean-Pierre Fouque, Sebastian Jaimungal and Yuri F. Saporito

Papers from arXiv.org

Abstract: Trading frictions are stochastic. They are, moreover, in many instances fast-mean reverting. Here, we study how to optimally trade in a market with stochastic price impact and study approximations to the resulting optimal control problem using singular perturbation methods. We prove, by constructing sub- and super-solutions, that the approximations are accurate to the specified order. Finally, we perform some numerical experiments to illustrate the effect that stochastic trading frictions have on optimal trading.

Date: 2021-01, Revised 2023-08
New Economics Papers: this item is included in nep-mst
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