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Liquidity costs: a new numerical methodology and an empirical study
Abstract : We consider rate swaps which pay a fixed rate against a floating rate in presence of bid-ask spread costs. Even for simple models of bid-ask spread costs, there is no explicit optimal strategy minimizing a risk measure of the hedging error. We here propose an efficient algorithm, based on the stochas-tic gradient method, to obtain an approximate optimal strategy without solving a stochastic control problem. We validate our algorithm by numer-ical experiments. We also develop several variants of the algorithm and discuss their performances in terms of the numerical parameters and the liquidity cost.
Cited literature [14 references]
https://hal.inria.fr/hal-01098096
Contributor : Etienne Tanré <>
Submitted on : Wednesday, December 23, 2015 - 6:52:45 AM
Last modification on : Tuesday, May 18, 2021 - 2:32:02 PM
Long-term archiving on: : Sunday, April 30, 2017 - 12:17:11 AM
Contributor : Etienne Tanré <>
Submitted on : Wednesday, December 23, 2015 - 6:52:45 AM
Last modification on : Tuesday, May 18, 2021 - 2:32:02 PM
Long-term archiving on: : Sunday, April 30, 2017 - 12:17:11 AM
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