An approximate dynamic programming approach to risk sensitive control of execution costs

Thesis (M. Eng.)--Massachusetts Institute of Technology, Dept. of Electrical Engineering and Computer Science, February 2009.Cataloged from PDF version of thesis.Includes bibliographical references (p. 43-44).We study the problem of optimal execution within a dynamic programming framework. Given an exponential objective function, system variables which are normally distributed, and linear market dynamics, we derive a closed form solution for optimal trading trajectories. We show that a trader lacking private information has trajectories which are static in nature, whilst a trader with private information requires real time observations to execute optimally. We further show that Bellman's equations become increasingly complex to solve if either the market dynamics are nonlinear, or if additional constraints are added to the problem. As such, we propose an approximate dynamic program using linear programming which achieves near-optimality. The algorithm approximates the exponential objective function within a class of linear architectures, and takes advantage of a probabilistic constraint sampling scheme in order to terminate. The performance of the algorithm relies on the quality of the approximation, and as such we propose a set of heuristics for its efficient implementation.by David Jeria.M.Eng

Tight SoS-Degree Bounds for Approximate Nash Equilibria

Nash equilibria always exist, but are widely conjectured to require time to find that is exponential in the number of strategies, even for two-player games. By contrast, a simple quasi-polynomial time algorithm, due to Lipton, Markakis and Mehta (LMM), can find approximate Nash equilibria, in which no player can improve their utility by more than ε by changing their strategy. The LMM algorithm can also be used to find an approximate Nash equilibrium with near-maximal total welfare. Matching hardness results for this optimization problem were found assuming the hardness of the planted-clique problem (by Hazan and Krauthgamer) and assuming the Exponential Time Hypothesis (by Braverman, Ko and Weinstein). In this paper we consider the application of the sum-squares (SoS) algorithm from convex optimization to the problem of optimizing over Nash equilibria. We show the first unconditional lower bounds on the number of levels of SoS needed to achieve a constant factor approximation to this problem. While it may seem that Nash equilibria do not naturally lend themselves to convex optimization, we also describe a simple LP (linear programming) hierarchy that can find an approximate Nash equilibrium in time comparable to that of the LMM algorithm, although neither algorithm is obviously a generalization of the other. This LP can be viewed as arising from the SoS algorithm at log n levels – matching our lower bounds. The lower bounds involve a modification of the Braverman-Ko-Weinstein embedding of CSPs into strategic games and techniques from sum-of-squares proof systems. The upper bound (i.e. analysis of the LP) uses information-theory techniques that have been recently applied to other linear- and semidefinite programming hierarchies

Extended Formulations in Mixed-integer Convex Programming

We present a unifying framework for generating extended formulations for the polyhedral outer approximations used in algorithms for mixed-integer convex programming (MICP). Extended formulations lead to fewer iterations of outer approximation algorithms and generally faster solution times. First, we observe that all MICP instances from the MINLPLIB2 benchmark library are conic representable with standard symmetric and nonsymmetric cones. Conic reformulations are shown to be effective extended formulations themselves because they encode separability structure. For mixed-integer conic-representable problems, we provide the first outer approximation algorithm with finite-time convergence guarantees, opening a path for the use of conic solvers for continuous relaxations. We then connect the popular modeling framework of disciplined convex programming (DCP) to the existence of extended formulations independent of conic representability. We present evidence that our approach can yield significant gains in practice, with the solution of a number of open instances from the MINLPLIB2 benchmark library.Comment: To be presented at IPCO 201