Efficient trading with nonlinear utility

In an environment in which agents have nonlinear utility and sufficiently asymmetric initial endowments, we show that efficient trading is achievable. This result is in contrast with Myerson and Satterthwaite (1983), which shows efficient trading is not possible if agents have linear utility and asymmetric initial endowments. Our result is also different from Cramton et al. (1987), in which they maintain the linear utility assumption as in Myerson and Satterthwaite but assume that traders’ initial endowments are relatively symmetric.     

Link-save trading

Transaction costs involved while trading several assets may be described using bid-ask spread of the asset prices. We assume that the prices of several assets may be linked, so that transactions involving several assets have prices that are not necessarily equal to the sums of (bid or ask) prices of the individual assets. The family of possible price combinations forms a convex (random) set which changes in time and is called the set-valued price process. It is shown that the necessary and sufficient condition for no-arbitrage is the existence of a martingale selection, i.e. a martingale that takes values in the set-valued price process. Examples and applications to option pricing are discussed.     

Cournot duopoly and insider trading with two insiders

We study the effect of competition among insiders in an extension of the static Kyle [Kyle, A. (1985). Continuous auctions and insider trading. Econometrica, 53, 1315–1335] model of insider trading introduced by Jain and Mirman (JMC) [Jain, N., & Mirman, L.J. (2002). Effects of insider trading under different market structures. The Quarterly Review of Economics and Finance, 42, 19–39]. In the JMC model competition in the real sector is introduced. In this paper we introduce competition in the stock sector in the JMC model by assuming that there is a manager who is responsible for making the real decisions of the firm as well as an ‘owner’ who has the same information as the manager but has no managerial responsibilities. In this way we can study the interaction between competition in the real sector and competition in the financial sector. We show that the stock price set by the market makers reveals more information than in the JMC model and that the expected equilibrium values of the manager’s profits sometimes decline and sometimes increase depending on the exogenous parameters of the model. Moreover, we prove that due to the competition in the financial sector, the level of output produced by the firm is less than in JMC. Finally, we also study the effect of financial competition in the case in which the market makers receive only one signal and analyze the comparative statics in this case.     

When continuous trading becomes continuous: The impact of institutional trading on the continuous trading system of the Warsaw Stock Exchange

This paper examines the impact of a large increase in the number of institutional traders on the performance of a continuous trading system using Polish stock market data. After the Polish pension reform in 1999, the domestic stock market experienced large inflows of money. We theoretically and empirically show that those stocks that are actively traded by pension funds display increases in the share of continuous trading and corresponding liquidity in this system, while no positive effects are found for other stocks. Moreover, we find spill-over effects to the call auction system.     

Spurious regressions in technical trading

This paper investigates the spurious effect in forecasting asset returns when signals from technical trading rules are used as predictors. Against economic intuition, the simulation result shows that, even if past information has no predictive power, buy or sell signals based on the difference between the short-period and long-period moving averages of past asset prices can be statistically significant when the forecast horizon is relatively long. The theoretical analysis reveals that both ‘momentum’ and ‘contrarian’ strategies can be falsely supported, while the probability of obtaining each result depends on the type of the test statistics employed.     

Derivative trading by utility firms

This paper examines the use of derivatives by a utility company. The hedging problem for utilities is atypical; the goal is not strictly to minimize average costs. Rather, the objectives are to minimize the upside risk associated with extreme bills, volatility of bills, and average expected bills for consumers. We characterize the optimal positions on futures contracts and options on futures that a utility company should assume. The results indicate that the use of derivatives (both futures and options on futures) is an efficient means of optimizing the objective functions without exposing consumers to speculative risk.     

Day trading and stock price volatility

When an investor buys and sells the same stock on the same day, he is said to have made a day trade. Using the trading records of Finnish traders, this paper examines whether day trading is related to volatility of stock prices. I find a strong positive time-series relation between the number of day trades by individual investors and intraday volatility among heavily day traded stocks. This effect is robust after controlling for a previously documented volume–volatility relation. The result suggests that the joint hypothesis of price pressure and volatility induced day trading dominates the liquidity effects of day trading.     

Endogenous trading in credit default swaps

We introduce a real options model in order to quantify the moral hazard impact of credit default swap (CDS) positions on the corporate default probabilities. Moral hazard is widely addressed in the insurance literature, where the insured agent may become less cautious about preventing the risk from occurring. Importantly, with CDS the moral hazard problem may be magnified since one can buy multiple protections for the same bond. To illustrate this issue, we consider a firm with the possibility of switching from an investment to another one. An investor can influence the strategic decisions of the firm and can also trade CDS written on the firm. We analyze how the decisions of the investor influence the firm value when he is allowed to trade credit default contracts on the firm’s debt. Our model involves a time-dependent optimal stopping problem, which we study analytically and numerically, using the Longstaff–Schwartz algorithm. We identify the situations where the investor exercises the switching option with a loss, and we measure the impact on the firm’s value and firm’s default probability. Contrary to the common intuition, the investors’ optimal behavior does not systematically consist in buying CDSs and increase the default probabilities. Instead, large indifference zones exist, where no arbitrage profits can be realized. As the number of the CDSs in the position increases to exceed several times the level of a complete insurance, we enter in the zone where arbitrage profits can be made. These are obtained by implementing very aggressive strategies (i.e., increasing substantially the default probability by producing losses to the firm). The profits increase sharply as we exit the indifference zone.     

Heterogeneous trading and complex price dynamics

We review the book “Behavioural Rationality and Heterogeneous Expectations in Complex Economic Systems” written by Cars Hommes and discuss the research trends on the dynamic interaction between heterogeneous investment and complex asset price movements.     

期货市场程序化交易研究

随着我国金融市场的繁荣发展,期货市场也呈现出快速发展的趋势,但是由于期货市场分布比较散乱,交易的种类和程序存在着很大的差异,导致期货市场风险居高不下。     

Local determinacy of prices in an overlapping generations model with continuous trading

We characterize the determinacy properties of the intertemporal equilibrium for a continuous-time, pure-exchange, overlapping generations economy with logarithmic preferences. Using recent advances in the theory of functional differential equations, we show that the equilibrium is locally unique and that prices converge to a balanced growth path and are determined.     

Commodity money equilibrium in a convex trading post economy with transaction costs

Existence and efficiency of general equilibrium with commodity money is investigated in an economy where N   commodities are traded at N(N−1)/2$N(N-1)/2$ commodity-pairwise trading posts. Trade is a resource-using activity recovering transaction costs through the spread between bid (wholesale) and ask (retail) prices. Budget constraints, enforced at each trading post separately, imply demand for a carrier of value between trading posts. Existence of general equilibrium is established under conventional convexity and continuity conditions while structuring the price space to account for distinct bid and ask price ratios. Commodity money flows are identified as the difference between gross and net inter-post trades.     

论我国商事登记制度

文章通过分析我国现行商事登记法律制度中有违效率价值的问题就完善我国商事登记法律制度实现效率与价值最佳均衡提出几点立法建议。     

关于投资者融资融券交易的思考

本文对融资融券交易进行了简要介绍,系统阐述了融资融券交易的交易策略以及投资者从事融资融券交易将要面临的各种风险,最后向投资者指出了从事融资融券交易应注意的事项.     

Dynamic pairs trading using the stochastic control approach

We propose a model for analyzing dynamic pairs trading strategies using the stochastic control approach. The model is explored in an optimal portfolio setting, where the portfolio consists of a bank account and two co-integrated stocks and the objective is to maximize for a fixed time horizon, the expected terminal utility of wealth. For the exponential utility function, we reduce the problem to a linear parabolic partial differential equation which can be solved in closed form. In particular, we exhibit the optimal positions in the two stocks.     

Asset allocation and multivariate position based trading

I add a second risky asset and a risk free bond to the univariate artificial market investigated by Lux and Marchesi (Int J Theor Appl Finance 3(4):675–702, 2000), keeping track of traders aggregate positions and wealth. Asset allocation and security selection are modeled as separate decision processes, as is common practice in financial institutions. Introducing position based trading avoids inconsistencies in traders inventories resulting from the order based setup of the original model, while preserving its ability to reproduce the stylized facts of financial return series.      

Variance trading and market price of variance risk

This paper develops a new approach for variance trading. We show that the discretely-sampled realized variance can be robustly replicated under very general conditions, including when the price can jump. The replication strategy specifies the exact timing for rebalancing in the underlying. The deviations from the optimal schedule can lead to surprisingly large hedging errors. In the empirical application, we synthesize the prices of the variance contract on S&P 500 index over the period from 01/1990 to 12/2009. We find that the market variance risk is priced, its risk premium is negative and economically very large. The variance risk premium cannot be explained by the known risk factors and option returns.     

带有能力约束的大规模联合补货问题研究

文中研究求解带有能力约束限制的大规模联合补货问题。在订货网络中,通过聚类算法将问题规模缩小至一定范围内,使算法在该范围内具有良好的表现;其次,在问题的模型中,考虑转运中心的能力限制,保证在任何订货周期内不出现超出转运中心能力负荷的情况;第三,通过改进经典RAND算法,引入拉格朗日乘子,求解模型,所优化的目标为总费用最小化和求解速度质量的平衡。最后根据数值算例验证策略有效性。     

Efficient provision of public goods with endogenous redistribution

We study a balanced mechanism that is capable of implementing in Nash equilibrium all the Pareto-efficient individually rational allocations for an economy with public goods. The Government chooses a set of weights directly related to the Lindahl prices corresponding to the Pareto-efficient allocation to be implemented. The mechanism then guarantees that initial endowments are re-allocated so that the chosen vector of Lindahl prices is indeed a Lindahl equilibrium, and implements the corresponding Lindahl allocation. Finally, besides being balanced, our mechanism is simple. Each agent has to declare a desired increase in the amount of public good, and a vector of redistributive transfers of initial endowments (across other agents).Received: 9 May 2003, Accepted: 22 October 2003, JEL Classification: C79, H21, H30, H41We wish to thank Jeremy Edwards, Andrew Postlewaite and Emanuela Sciubba for helpful comments. Of course, any remaining errors are our own.