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arXiv · 2003.04646

Equations and Shape of the Optimal Band Strategy

Joachim de Lataillade·Ayman Chaouki
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Abstract

We consider the problem of the optimal trading strategy in the presence of a price predictor, linear trading costs and a quadratic risk control. The solution is known to be a band system, a policy that induces a no-trading zone in the positions space. Using a path-integral method introduced in a previous work, we give equations for the upper and lower edges of this band, and solve them explicitly in the case of an Ornstein-Uhlenbeck predictor. We then explore the shape of this solution and derive its asymptotic behavior for large values of the predictor, without requiring trading costs to be small.

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Joachim de Lataillade, Ayman Chaouki. 2020-03-10. Equations and Shape of the Optimal Band Strategy. https://arxiv.org/abs/2003.04646

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