Department of Mathematics

Financial Markets with Friction

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Organizers H. M. Soner and A. Roch
Place HG D 7.2
Time Thursday 15-17
Beginning February 25
Organizational  meeting February 25
Contact Prof. Dr. H. M. Soner

Dr. A. Roch

Prerequisites Probability theory, Mathematical Finance
Description In this seminar, we will explore financial markets with friction, namely illiquid markets, markets with transaction costs and price impact models. In particular, limit order book and large trader models will be studied. Moreover, we will consider works on option pricing and equilibrium theory in the presence of speculative bubbles.
Literature 1. Almgren, R., Chriss, N.: Optimal execution of portfolio transactions. J. Risk 3, 5–39 (2001)

2. Alfonsi, A., Schied, A., Fruth, A.: Optimal execution strategies in limit order books with general shape functions. To appear in Quantitative Finance. (2009)

3. Bank, P. and Baum, D.: Hedging and portfolio optimization in illiquid financial markets with a large trader. Math. Finance  (2004)

4. Cox, A.M. and Hobson, D.G.: Local martingales, bubbles and option prices. Finance and Stochastics, 9:477 – 492 (2005)

5. Obizhaeva, A. and Wang, Z.: Optimal trading strategy and supply/demand dynamics, forthcoming in Journal of Financial Markets. (2006)

6. Peng, S.: Backward SDE and related g-expectation. Backward Stochastic Differential Equations (Paris,1995–1996), Pitman Research Notes Mathematics Series, No. 364, Longman, Harlow, UK, 141–159.

7. Shreve, S.E., Soner, H.M.: Optimal investment and consumption with transaction costs. Ann. Appl. Probab. 4, 609–692 (1994)

8. Loewenstein, M., and G. Willard: "Rational Equilibrium Asset-Pricing Bubbles in Continuous Trading Models," Journal of Economic Theory, 91, 17-58. (2000)

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