Optimal trading with linear and (small) non-linear costs

Bouchaud et al find the optimal trading strategy for a family of predictive signals in the presence of transaction costs


How should you trade your favourite alpha signal? This simple-sounding question is of pivotal importance for quantitative asset managers, as fees, bid/ask spreads and market impact chip away at their gains. In this paper, Adam Rej, Raphael Benichou, Joachim de Lataillade, Gilles Zérah and Jean-Philippe Bouchaud find the optimal trading strategy for a rich family of predictive signals in the presence of these costs, extending previous papers in which they were only

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