Optimal position-building strategies in competition

Neil A. Chriss

Papers from arXiv.org

Abstract: This paper develops a mathematical framework for building a position in a stock over a fixed period of time while in competition with one or more other traders doing the same thing. We develop a game-theoretic framework that takes place in the space of trading strategies where action sets are trading strategies and traders try to devise best-response strategies to their adversaries. In this setup trading is guided by a desire to minimize the total cost of trading arising from a mixture of temporary and permanent market impact caused by the aggregate level of trading including the trader and the competition. We describe a notion of equilibrium strategies, show that they exist and provide closed-form solutions.

Date: 2024-09, Revised 2024-11
New Economics Papers: this item is included in nep-cta and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2409.03586

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