Trading Prophets with Initial Capital (2510.16516v1)

Abstract: Correa et al. [EC' 2023] introduced the following trading prophets problem. A trader observes a sequence of stochastic prices for a stock, each drawn from a known distribution, and at each time must decide whether to buy or sell. Unfortunately, they observed that in this setting it is impossible to compete with a prophet who knows all future stock prices. In this paper, we explore the trading prophets problem when we are given initial capital with which to start trading. We show that initial capital is enough to bypass the impossibility result and obtain a competitive ratio of $3$ with respect to a prophet who knows all future prices (and who also starts with capital), and we show that this competitive ratio is best possible. We further study a more realistic model in which the trader must pay multiplicative and/or additive transaction costs for trading which model dynamics such as bid-ask spreads and broker fees.