Journal article
Hedge and speculate: replicating option payoffs with limit and market orders
- Abstract:
-
We consider an agent who takes a short position in a contingent claim and employs limit orders (LOs) and market orders (MOs) to trade in the underlying asset to maximize expected utility of terminal wealth. The agent solves a combined optimal stopping and control problem where trading has frictions: MOs (executed by the agent and other traders) have permanent price impact and pay exchange fees, and LOs earn the spread (relative to the midprice of the asset) and pay no exchange fees. We show h...
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- Publication status:
- Published
- Peer review status:
- Peer reviewed
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Authors
Bibliographic Details
- Publisher:
- Society for Industrial and Applied Mathematics Publisher's website
- Journal:
- SIAM Journal on Financial Mathematics Journal website
- Volume:
- 10
- Issue:
- 3
- Pages:
- 790–814
- Publication date:
- 2019-09-17
- Acceptance date:
- 2019-06-14
- DOI:
- EISSN:
-
1945-497X
Item Description
- Language:
- English
- Keywords:
- Pubs id:
-
pubs:1015712
- UUID:
-
uuid:405c3eb3-130f-4e67-bff0-223c4f6e980a
- Local pid:
- pubs:1015712
- Source identifiers:
-
1015712
- Deposit date:
- 2019-06-18
Terms of use
- Copyright holder:
- Society for Industrial and Applied Mathematics
- Copyright date:
- 2019
- Rights statement:
- © 2019, Society for Industrial and Applied Mathematics
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