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Optimal Trading with Online Parameter Revisions

Author

Listed:
  • N. Baradel

    (CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz], CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Bruno Bouchard

    (CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • N. m. Dang

    (UNS-HCMC - University of Natural Science, Vietnam National University HoChiMinhCity - University of Natural Science, HoChiMinhCity)

Abstract

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 in 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.

Suggested Citation

  • N. Baradel & Bruno Bouchard & N. m. Dang, 2016. "Optimal Trading with Online Parameter Revisions," Post-Print hal-01590602, HAL.
    • Handle: RePEc:hal:journl:hal-01590602
    DOI: 10.1142/S2382626617500034
    Note: View the original document on HAL open archive server: https://hal.science/hal-01590602
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    References listed on IDEAS

    as
    1. Charles-Albert Lehalle & Sophie Laruelle (ed.), 2013. "Market Microstructure in Practice," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 8967, August.
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    Cited by:

    1. Nicolas Baradel & Bruno Bouchard & David Evangelista & Othmane Mounjid, 2018. "Optimal inventory management and order book modeling," Working Papers hal-01710301, HAL.
    2. Nicolas Baradel & Bruno Bouchard & David Evangelista & Othmane Mounjid, 2018. "Optimal inventory management and order book modeling," Papers 1802.08135, arXiv.org, revised Nov 2018.
    3. Nicolas Baradel & Bruno Bouchard & David Evangelista & Othmane Mounjid, 2019. "Optimal inventory management and order book modeling," Post-Print hal-01710301, HAL.

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    Keywords

    Optimal trading; market impact; uncertainty; Bayesian filtering;
    All these keywords.

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