## Publications

32 results found

Muhle-Karbe J, Wang Z, Webster K, 2023, A Leland model for delta hedging in central risk books, Publisher: WILEY

Muhle-Karbe J, Wang Z, Webster K, 2022, Stochastic Liquidity as a Proxy for Nonlinear Price Impact

Micheli A, Muhle-Karbe J, Neuman E, 2021, Closed-Loop Nash Competition for Liquidity, Publisher: Elsevier BV

Herdegen M, Muhle-Karbe J, Stebegg F, 2021, Liquidity Provision with Adverse Selection and Inventory Costs

Gonon L, Muhle-Karbe J, Shi X, 2021, Asset pricing with general transaction costs: Theory and numerics, *MATHEMATICAL FINANCE*, Vol: 31, Pages: 595-648, ISSN: 0960-1627

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- Citations: 9

Muhle-Karbe J, Shi X, Yang C, 2020, An Equilibrium Model for the Cross-Section of Liquidity Premia

MuhleKarbe J, Nutz M, Tan X, 2020, Asset pricing with heterogeneous beliefs and illiquidity, *Mathematical Finance*, Vol: 30, Pages: 1392-1421, ISSN: 0960-1627

<jats:title>Abstract</jats:title><jats:p>This paper studies the equilibrium price of an asset that is traded in continuous time between <jats:italic>N</jats:italic> agents who have heterogeneous beliefs about the state process underlying the asset's payoff. We propose a tractable model where agents maximize expected returns under quadratic costs on inventories and trading rates. The unique equilibrium price is characterized by a weakly coupled system of linear parabolic equations which shows that holding and liquidity costs play dual roles. We derive the leading‐order asymptotics for small transaction and holding costs which give further insight into the equilibrium and the consequences of illiquidity.</jats:p>

Herdegen M, Muhle-Karbe J, Possamaï D, 2020, Equilibrium Asset Pricing with Transaction Costs

Cayé T, Herdegen M, Muhle-Karbe J, 2020, Trading with small nonlinear price impact, *Annals of Applied Probability*, Vol: 30, Pages: 706-746, ISSN: 1050-5164

We study portfolio choice with small nonlinear price impact on general market dynamics. Using probabilistic techniques and convex duality, we show that the asymptotic optimum can be described explicitly up to the solution of a nonlinear ODE, which identifies the optimal trading speed and the performance loss due to the trading friction. Previous asymptotic results for proportional and quadratic trading costs are obtained as limiting cases. As an illustration, we discuss how nonlinear trading costs affect the pricing and hedging of derivative securities and active portfolio management.

Muhle-Karbe J, Nutz M, Tan X, 2020, Asset Pricing with Heterogeneous Beliefs and Illiquidity

Herrmann S, Muhle-Karbe J, Shang D,
et al., 2020, Inventory Management for High-Frequency Trading with Imperfect Competition, *SIAM JOURNAL ON FINANCIAL MATHEMATICS*, Vol: 11, Pages: 1-26, ISSN: 1945-497X

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- Citations: 2

Guasoni P, Liu R, Muhle-Karbe J, 2019, Who should sell stocks?, *Mathematical Finance*, Vol: 29, Pages: 448-482, ISSN: 0960-1627

Cohen SN, Henckel T, Menzies GD,
et al., 2018, Switching Cost Models as Hypothesis Tests, *Economics Letters*, ISSN: 0165-1765

Ekren I, Muhle-Karbe J, 2018, Portfolio Choice with Small Temporary and Transient Price Impact, *Mathematical Finance*, ISSN: 0960-1627

Belak C, Muhle-Karbe J, Ou K, 2018, Optimal Trading with General Signals and Liquidation in Target Zone Models

Bank P, Ekren I, Muhle-Karbe J, 2018, Liquidity in competitive dealer markets

We study a continuous-time version of the intermediation model of Grossman and Miller (1988). To wit, we solve for the competitive equilibrium prices at which liquidity takers' demands are absorbed by dealers with quadratic inventory costs, who can in turn gradually transfer these positions to an end-user market. This endogenously leads to a model with transient price impact. Smooth, diffusive, and discrete trades all incur finite but nontrivial liquidity costs, and can arise naturally from the liquidity takers' optimization.

Bouchard B, Fukasawa M, Herdegen M,
et al., 2018, Equilibrium Returns with Transaction Costs, *Finance and Stochastics*, Pages: 569-601, ISSN: 1432-1122

Herdegen M, Muhle-Karbe J, 2018, Stability of Radner equilibria with respect to small frictions, *Finance and Stochastics*, Vol: 22, Pages: 443-502, ISSN: 0949-2984

We study risk-sharing equilibria with trading subject to small proportional transaction costs. We show that the frictionless equilibrium prices also form an “asymptotic equilibrium” in the small-cost limit. More precisely, there exist asymptotically optimal policies for all agents and a split of the trading cost according to their risk aversions for which the frictionless equilibrium prices still clear the market. Starting from a frictionless equilibrium, this allows studying the interplay of volatility, liquidity and trading volume.

Muhle-Karbe J, Nutz M, 2018, A risk-neutral equilibrium leading to uncertain volatility pricing, *Finance and Stochastics*, Vol: 22, Pages: 281-295, ISSN: 0949-2984

Muhle-Karbe J, Reppen M, Soner HM, 2017, A Primer on Portfolio Choice with Small Transaction Costs, *Annual Review of Financial Economics*, Vol: 9, Pages: 301-331

Herrmann S, Muhle-Karbe J, 2017, Model uncertainty, recalibration, and the emergence of delta–vega hedging, *Finance and Stochastics*, Vol: 21, Pages: 873-930, ISSN: 0949-2984

Muhle-Karbe J, Webster K, 2017, Information and Inventories in High-Frequency Trading

Ekren I, Liu R, Muhle-Karbe J, 2017, Optimal Rebalancing Frequencies for Multidimensional Portfolios

Moreau L, Muhle-Karbe J, Soner HM, 2017, Trading with Small Price Impact, *Mathematical Finance*, Vol: 27, Pages: 350-400, ISSN: 0960-1627

Guasoni P, MuhleKarbe J, Xing H, 2017, ROBUST PORTFOLIOS AND WEAK INCENTIVES IN LONG‐RUN INVESTMENTS, *Mathematical Finance*, Vol: 27, Pages: 3-37, ISSN: 0960-1627

<jats:p>When the planning horizon is long, and the safe asset grows indefinitely, isoelastic portfolios are nearly optimal for investors who are close to isoelastic for high wealth, and not too risk averse for low wealth. We prove this result in a general arbitrage‐free, frictionless, semimartingale model. As a consequence, optimal portfolios are robust to the perturbations in preferences induced by common option compensation schemes, and such incentives are weaker when their horizon is longer. Robust option incentives are possible, but require several, arbitrarily large exercise prices, and are not always convex.</jats:p>

Guasoni P, MuhleKarbe J, 2015, LONG HORIZONS, HIGH RISK AVERSION, AND ENDOGENOUS SPREADS, *Mathematical Finance*, Vol: 25, Pages: 724-753, ISSN: 0960-1627

<jats:p>For an investor with constant absolute risk aversion and a long horizon, who trades in a market with constant investment opportunities and small proportional transaction costs, we obtain explicitly the optimal investment policy, its implied welfare, liquidity premium, and trading volume. We identify these quantities as the limits of their isoelastic counterparts for high levels of risk aversion. The results are robust with respect to finite horizons, and extend to multiple uncorrelated risky assets. In this setting, we study a Stackelberg equilibrium, led by a risk‐neutral, monopolistic market maker who sets the spread as to maximize profits. The resulting endogenous spread depends on investment opportunities only, and is of the order of a few percentage points for realistic parameter values.</jats:p>

Guasoni P, Muhle-Karbe J, Xing H, 2013, Robust Portfolios and Weak Incentives in Long Run Investments, *Boston U. School of Management Research Paper*

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