Incorporating Signals into Optimal Trading

Optimal trading field of research which was initiated in the late 90's. Its main application is slicing large trading orders, in the interest of minimizing trading costs and potential perturbations of price dynamics due to... [ view full abstract ]

Optimal trading field of research which was initiated in the late 90's. Its main application is slicing large trading orders, in the interest of minimizing trading costs and potential perturbations of price dynamics due to liquidity shocks. The inclusion of signals (i.e. short term predictors of price dynamics) in optimal trading is a recent development and it is also the subject of this work. We incorporate a Markovian signal in the optimal trading framework which involves a transient market impact and provide results on the existence and uniqueness of an optimal trading strategy.