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Fast and slow optimal trading with exogenous information

Rama Cont et al.

Finance and Stochastics2025https://doi.org/10.1007/s00780-025-00560-warticle
AJG 3ABDC A
Weight
0.41

Abstract

We model the interaction between an investor executing trades at low frequency and a high-frequency trader as a multiperiod stochastic Stackelberg game. The high-frequency trader exploits price information more frequently and is subject to periodic inventory constraints. We are able to explicitly compute the equilibrium strategies, in two steps. We first derive the optimal strategy of the high-frequency trader given any strategy adopted by the investor. Then we solve the problem of the investor given the optimal strategy of the high-frequency trader, in terms of the resolvent of a Fredholm integral equation. Our results show that the high-frequency trader adopts a predatory strategy whenever the value of the trading signal is high, and follows a cooperative strategy otherwise. We also show that there is a net gain in performance for the investor from taking into account the order flow of the high-frequency trader. A U-shaped intraday pattern in trading volume is shown to arise endogenously as a result of the strategic behaviour of the agents.

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https://doi.org/https://doi.org/10.1007/s00780-025-00560-w

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@article{rama2025,
  title        = {{Fast and slow optimal trading with exogenous information}},
  author       = {Rama Cont et al.},
  journal      = {Finance and Stochastics},
  year         = {2025},
  doi          = {https://doi.org/https://doi.org/10.1007/s00780-025-00560-w},
}

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Evidence weight

0.41

Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40

F · citation impact0.25 × 0.4 = 0.10
M · momentum0.55 × 0.15 = 0.08
V · venue signal0.50 × 0.05 = 0.03
R · text relevance †0.50 × 0.4 = 0.20

† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.