A model of optimal portfolio selection under liquidity risk and price impact

We study a financial model with one risk-free and one risky asset subject to liquidity risk and price impact. In this market, an investor may transfer funds between the two assets at any discrete time. Each purchase or sale policy decision affects the rice of the risky asset and incurs some fixed transaction cost. The objective is to maximize the expected utility from terminal liquidation value over a finite horizon and subject to a solvency constraint. This is formulated as an impulse control problem under state constraints and we characterize the value function as the unique constrained viscosity solution to the associated quasi-variational Hamilton–Jacobi–Bellman inequality. We would like to thank Mihail Zervos for useful discussions.     

Discovering Implicit Criteria Preferences Reflected in Tourism Journal Ranking Lists using the Choquet Integral

Variations between journal rankings may cause confusion. As such, prior attempts were made to compare and evaluate journal ranking criteria for obtaining insightful knowledge on how different research communities have ranked journals. However, existing approaches are unable to model the journal ranking process closely enough as they are incapable of considering the relationship between multiple criteria simultaneously. In this paper, we address the challenges by introducing the Choquet Integral (CI) for evaluating journal ranking criteria. The new approach is able to account for interactions between criteria in relation to overall ranking score, using a fuzzy measure in its computation. Its properties, the Shapley value and the Interaction index, allow for good representations of importance and interactions between criteria. We demonstrate the efficiency of the CI through a case study of journal ranking lists in tourism and service journals.     

Algorithmic trading in a microstructural limit order book model

We propose a microstructural modeling framework for studying optimal market-making policies in a FIFO (first in first out) limit order book (order book). In this context, the limit orders, market orders, and cancel orders arrivals in the order book are modeled as point processes with intensities that only depend on the state of the order book. These are high-dimensional models which are realistic from a micro-structure point of view and have been recently developed in the literature. In this context, we consider a market maker who stands ready to buy and sell stock on a regular and continuous basis at a publicly quoted price, and identifies the strategies that maximize their P&L penalized by their inventory. An extension of the methodology is proposed to solve market-making problems where the orders arrivals are modeled using Hawkes processes with exponential kernel.

We apply the theory of Markov Decision Processes and dynamic programming method to characterize analytically the solutions to our optimal market-making problem. The second part of the paper deals with the numerical aspect of the high-dimensional trading problem. We use a control randomization method combined with quantization method to compute the optimal strategies. Several computational tests are performed on simulated data to illustrate the efficiency of the computed optimal strategy. In particular, we simulated an order book with constant/ symmetric/ asymmetrical/ state dependent intensities, and compared the computed optimal strategy with naive strategies. Some codes are available on https://github.com/comeh.     

Incorporating Both Positive and Negative Association Rules into the Analysis of Outbound Tourism in Hong Kong

This article presents a novel approach to data mining that incorporates both positive and negative association rules into the analysis of outbound travelers. Using datasets collected from three large-scale domestic tourism surveys on Hong Kong residents' outbound pleasure travel, different sets of targeted rules were generated to provide promising information that will allow practitioners and policy makers to better understand the important relationship between condition attributes and target attributes. This article will be of interest to readers who want to understand methods for integrating the latest data mining techniques into tourism research. It will also be of use to marketing managers in destinations to better formulate strategies for receiving outbound travelers from Hong Kong, and possibly elsewhere.     

A MODEL OF OPTIMAL CONSUMPTION UNDER LIQUIDITY RISK WITH RANDOM TRADING TIMES

We consider a portfolio/consumption choice problem in a market model with liquidity risk. The main feature is that the investor can trade and observe stock prices only at exogenous Poisson arrival times. He may also consume continuously from his cash holdings, and his goal is to maximize his expected utility from consumption. This is a mixed discrete/continuous stochastic control problem, non‐standard in the literature. The dynamic programming principle leads to a coupled system of Integro‐Differential Equations (IDE), and we provide a convergent numerical algorithm for the resolution to this coupled system of IDE. Several numerical experiments illustrate the impact of the restricted liquidity trading opportunities, and we measure in particular the utility loss with respect to the classical Merton consumption problem.     

The wealth effect and diamond risk structure of financial regulation

The objective of this article was to evaluate the effect of announcements of financial regulation on risk and return in the Vietnamese equity market. The techniques used for the purpose of analysing risk and return include event study and non-parametric tests, as well as asset pricing models supplemented with interaction variables and a variety of ARCH-like specifications such as GARCH, TARCH, EGARCH and PARCH. We find evidence for the wealth effect, the presence of delayed response and a risk shifting behaviour in the form of diamond risk structure. Our results show that abnormal returns are present around the announcements of operating rules and other stock market regulations. Abnormal returns can also be obtained after considering legal documents such as circulars and decisions.     

Optimal consumption with reference to past spending maximum

Finance and Stochastics - This paper studies the infinite-horizon optimal consumption problem with a path-dependent reference under exponential utility. The performance is measured by the...