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Trading foreign exchange triplets

Abstract:

We develop the optimal trading strategy for a foreign exchange (FX) broker who must liquidate a large position in an illiquid currency pair. To maximize revenues, the broker considers trading in a currency triplet which consists of the illiquid pair and two other liquid currency pairs. The liquid pairs in the triplet are chosen so that one of the pairs is redundant. The broker is risk-neutral and accounts for model ambiguity in the FX rates to make her strategy robust to model misspecificatio...

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Publication status:
Published
Peer review status:
Peer reviewed

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Publisher copy:
10.1137/18M1172089

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Institution:
University of Oxford
Division:
MPLS
Department:
Mathematical Institute
Role:
Author
More by this author
Institution:
University of Oxford
Division:
MPLS
Department:
Mathematical Institute
Sub department:
Mathematical Institute
Role:
Author
Publisher:
Society for Industrial and Applied Mathematics
Journal:
SIAM Journal on Financial Mathematics More from this journal
Volume:
11
Issue:
3
Pages:
690–719
Publication date:
2020-07-13
Acceptance date:
2020-04-24
DOI:
ISSN:
1945-497X
Language:
English
Keywords:
Pubs id:
1101553
Local pid:
pubs:1101553
Deposit date:
2020-04-25

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