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Quantitative Finance · Glossary

What is No-trade region?

Definition 10.7 Quantitative Methods · Chapter 10 — Optimal Stopping and Impulse Control

The no-trade region of a trading or hedging policy is the set of states in which it does not trade; for one exposure it is an interval (−b,b)(-b, b), and a band policy trades back to ±a\pm a when the exposure reaches ±b\pm b.

Ten simulated days of the desk’s exposure under the optimal band ± 34.6 million (dashed): client flows move it freely inside the no-trade region, and each touch of the band triggers a hedge back to zero. Data: the chapter’s tutorial, seeded.
Figure 10.2. Ten simulated days of the desk’s exposure under the optimal band ±34.6\pm 34.6 million (dashed): client flows move it freely inside the no-trade region, and each touch of the band triggers a hedge back to zero. Data: the chapter’s tutorial, seeded.
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