We derive the process followed by trading volume, in a market with finite depth and constant investment opportunities, where a large investor, with a long horizon and constant relative risk aversion, trades a safe and a risky asset. Trading volume approximately follows a Gaussian, mean-reverting diffusion, and increases with depth, volatility, and risk aversion. Unlike the frictionless theory, finite depth excludes leverage and short sales because such positions may not be solvent even with continuous trading.
Guasoni P, Weber M (2017). DYNAMIC TRADING VOLUME. MATHEMATICAL FINANCE, 27(2), 313-349 [10.1111/mafi.12099].
DYNAMIC TRADING VOLUME
Guasoni P
Co-primo
;
2017
Abstract
We derive the process followed by trading volume, in a market with finite depth and constant investment opportunities, where a large investor, with a long horizon and constant relative risk aversion, trades a safe and a risky asset. Trading volume approximately follows a Gaussian, mean-reverting diffusion, and increases with depth, volatility, and risk aversion. Unlike the frictionless theory, finite depth excludes leverage and short sales because such positions may not be solvent even with continuous trading.File in questo prodotto:
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