In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the optimal investment policy, its implied welfare, liquidity...

This papers studies the CDS-bond basis, i.e. a measure of price discrepanciesbetween CDS and bonds spreads, for a sample of investment-graded US rms. Resultsshow that during the 2007/09 nancial crisis the basis was time varying and negativelycorrelated to: the \Libor-OIS" spread, a proxy for the...

We analyze numerically the superreplication problem and the associatedhedging strategy in an illiquid binomial market. We prove theexistence of an optimal feedback strategy for European and barrier optionsand compute it numerically by means of a dynamic programmingprinciple. We exhibit that the...

We find optimal trading policies for long-term investors with constant relative risk aversion and constant investment opportunities, which include one safe asset, liquid risky assets, and an illiquid risky asset trading with proportional costs. Access to liquid assets creates a diversification...

A small investor provides liquidity at the best bid and ask prices of a limit order market. For small spreads and frequent orders of other market participants, we explicitly determine the investor's optimal policy and welfare. In doing so, we allow for general dynamics of the mid price, the...

We study optimal execution with "self-exciting" price impact, where persistent trades not only incur price impact but also increase the execution costs for successive orders. This model is motivated by an equilibrium between fundamental sellers, market makers, and end users. For risk-neutral...

We study a risk-sharing economy where an arbitrary number of heterogenous agents trades an arbitrary number of risky assets subject to quadratic transaction costs. For linear state dynamics, the forward-backward stochastic differential equations characterizing equilibrium asset prices and...

We study a multi-player stochastic differential game, where agents interact through their joint price impact on an asset that they trade to exploit a common trading signal. In this context, we prove that a closed-loop Nash equilibrium exists if the price impact parameter is small enough....