Browsing by Subject "Transaction cost"

Now showing 1 - 4 of 4

Open Access
Commonality in FX liquidity: High-frequency evidence
(Elsevier, 2020-06) Şensoy, Ahmet; Uzun, Sevcan; Lucey, B. M.
We test the existence and reveal the main properties of commonality in liquidity for the foreign exchange (FX) markets at the high-frequency level. Accordingly, commonality in FX liquidity exists even at the high-frequency level and it has been gradually increasing over the last few years. Moreover, commonality increases significantly before (after) ECB (Fed) monetary policy announcements. Finally, commonality in FX liquidity has a significant positive impact on the commonality in FX return series, indicating that an increase in the intraday systematic liquidity risk might trigger a negative aggregate liquidity-return spiral in the FX markets.
Open Access
Growth optimal investment with threshold rebalancing portfolios under transaction costs
(IEEE, 2013) Tunc, S.; Donmez, M.A.; Kozat, Süleyman S.
We study how to invest optimally in a stock market having a finite number of assets from a signal processing perspective. In particular, we introduce a portfolio selection algorithm that maximizes the expected cumulative wealth in i.i.d. two-asset discrete-time markets where the market levies proportional transaction costs in buying and selling stocks. This is achieved by using 'threshold rebalanced portfolios', where trading occurs only if the portfolio breaches certain thresholds. Under the assumption that the relative price sequences have log-normal distribution from the Black-Scholes model, we evaluate the expected wealth under proportional transaction costs and find the threshold rebalanced portfolio that achieves the maximal expected cumulative wealth over any investment period. © 2013 IEEE.
Open Access
Optimal investment under transaction costs: A threshold rebalanced portfolio approach
(IEEE, 2013) Tunc, S.; Donmez, M. A.; Kozat, S. S.
We study how to invest optimally in a financial market having a finite number of assets from a signal processing perspective. Specifically, we investigate how an investor should distribute capital over these assets and when he/she should reallocate the distribution of the funds over these assets to maximize the expected cumulative wealth over any investment period. In particular, we introduce a portfolio selection algorithm that maximizes the expected cumulative wealth in i.i.d. two-asset discrete-time markets where the market levies proportional transaction costs in buying and selling stocks. We achieve this using 'threshold rebalanced portfolios', where trading occurs only if the portfolio breaches certain thresholds. Under the assumption that the relative price sequences have log-normal distribution from the Black-Scholes model, we evaluate the expected wealth under proportional transaction costs and find the threshold rebalanced portfolio that achieves the maximal expected cumulative wealth over any investment period. Our derivations can be readily extended to markets having more than two stocks, where these extensions are provided in the paper. As predicted from our derivations, we significantly improve the achieved wealth with respect to the portfolio selection algorithms from the literature on historical data sets under both mild and heavy transaction costs.
Open Access
Set-valued shortfall and divergence risk measures
(World Scientific Publishing, 2017) Ararat, C.; Hamel, A. H.; Rudloff, B.
Risk measures for multivariate financial positions are studied in a utility-based framework. Under a certain incomplete preference relation, shortfall and divergence risk measures are defined as the optimal values of specific set minimization problems. The dual relationship between these two classes of multivariate risk measures is constructed via a recent Lagrange duality for set optimization. In particular, it is shown that a shortfall risk measure can be written as an intersection over a family of divergence risk measures indexed by a scalarization parameter. Examples include set-valued versions of the entropic risk measure and the average value at risk. As a second step, the minimization of these risk measures subject to trading opportunities is studied in a general convex market in discrete time. The optimal value of the minimization problem, called the market risk measure, is also a set-valued risk measure. A dual representation for the market risk measure that decomposes the effects of the original risk measure and the frictions of the market is proved.