Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR Approach
In the classical optimal execution problem, the basic assumption of underlying asset price is Arithmetic Brownian Motion (ABM) or Geometric Brownian Motion (GBM). However, many empirical researches show that the return distribution of assets may have heavy tails than those of normal distribution. Th...
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| Format: | Article |
| Language: | English |
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Wiley
2018-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2018/4721596 |
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| author | Tianmin Zhou Can Jia Handong Li |
| author_facet | Tianmin Zhou Can Jia Handong Li |
| author_sort | Tianmin Zhou |
| collection | DOAJ |
| description | In the classical optimal execution problem, the basic assumption of underlying asset price is Arithmetic Brownian Motion (ABM) or Geometric Brownian Motion (GBM). However, many empirical researches show that the return distribution of assets may have heavy tails than those of normal distribution. The uncertain information impact on financial market may be considered as one of the main reasons for heavy tails of return distribution. To introduce this information impact, our paper proposes a Jump Diffusion model for optimal execution problem. The jumps in our model are described by the compound Poisson process where random jump amplitude depicts the information impact on price process. In particular, the model is simple enough to derive closed-form strategies under risk neutral and Mean-VaR criterion. Simulation analysis of the model is also presented. |
| format | Article |
| id | doaj-art-abd729b4bde24f2f8d47d7e58b290c24 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2018-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-abd729b4bde24f2f8d47d7e58b290c242025-02-03T01:24:23ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2018-01-01201810.1155/2018/47215964721596Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR ApproachTianmin Zhou0Can Jia1Handong Li2School of Systems Science Beijing Normal University, Beijing 100875, ChinaSchool of Systems Science Beijing Normal University, Beijing 100875, ChinaSchool of Systems Science Beijing Normal University, Beijing 100875, ChinaIn the classical optimal execution problem, the basic assumption of underlying asset price is Arithmetic Brownian Motion (ABM) or Geometric Brownian Motion (GBM). However, many empirical researches show that the return distribution of assets may have heavy tails than those of normal distribution. The uncertain information impact on financial market may be considered as one of the main reasons for heavy tails of return distribution. To introduce this information impact, our paper proposes a Jump Diffusion model for optimal execution problem. The jumps in our model are described by the compound Poisson process where random jump amplitude depicts the information impact on price process. In particular, the model is simple enough to derive closed-form strategies under risk neutral and Mean-VaR criterion. Simulation analysis of the model is also presented.http://dx.doi.org/10.1155/2018/4721596 |
| spellingShingle | Tianmin Zhou Can Jia Handong Li Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR Approach Discrete Dynamics in Nature and Society |
| title | Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR Approach |
| title_full | Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR Approach |
| title_fullStr | Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR Approach |
| title_full_unstemmed | Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR Approach |
| title_short | Optimal Trade Execution under Jump Diffusion Process: A Mean-VaR Approach |
| title_sort | optimal trade execution under jump diffusion process a mean var approach |
| url | http://dx.doi.org/10.1155/2018/4721596 |
| work_keys_str_mv | AT tianminzhou optimaltradeexecutionunderjumpdiffusionprocessameanvarapproach AT canjia optimaltradeexecutionunderjumpdiffusionprocessameanvarapproach AT handongli optimaltradeexecutionunderjumpdiffusionprocessameanvarapproach |