%0 Generic %1 michel2015liquidity %A Michel, Christophe %A Reutenauer, Victor %A Talay, Denis %A Tanré, Etienne %D 2015 %K liquidity quantfinance %T Liquidity costs: a new numerical methodology and an empirical study %U http://arxiv.org/abs/1501.07404 %X 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 strategy optimizing an expected function of the hedging error. We here propose an efficient algorithm based on the stochastic gradient method to compute an approximate optimal strategy without solving a stochastic control problem. We validate our algorithm by numerical experiments. We also develop several variants of the algorithm and discuss their performances in terms of the numerical parameters and the liquidity cost.

@misc{michel2015liquidity, 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 strategy optimizing an expected function of the hedging error. We here propose an efficient algorithm based on the stochastic gradient method to compute an approximate optimal strategy without solving a stochastic control problem. We validate our algorithm by numerical experiments. We also develop several variants of the algorithm and discuss their performances in terms of the numerical parameters and the liquidity cost.}, added-at = {2015-02-05T15:43:55.000+0100}, author = {Michel, Christophe and Reutenauer, Victor and Talay, Denis and Tanré, Etienne}, biburl = {https://www.bibsonomy.org/bibtex/257fca12739743e79fa3e1d10cc9ccbe4/shabbychef}, description = {Liquidity costs: a new numerical methodology and an empirical study}, interhash = {1af7a8992529a0aedde0931f7789083a}, intrahash = {57fca12739743e79fa3e1d10cc9ccbe4}, keywords = {liquidity quantfinance}, note = {cite arxiv:1501.07404}, timestamp = {2015-02-05T15:43:55.000+0100}, title = {Liquidity costs: a new numerical methodology and an empirical study}, url = {http://arxiv.org/abs/1501.07404}, year = 2015 }