Optimal Liquidity Trading

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Optimal Liquidity Trading

Author Info

Gur Huberman
Werner Stanzl

Additional information is available for the following registered author(s):

Gur Huberman

Abstract

A liquidity trader wishes to trade a fixed number of shares within a certain time horizon and to minimize the mean and variance of the costs of trading. Explicit formulas for the optimal trading strategies show that risk-averse liquidity traders reduce their order sizes over time and execute a higher fraction of their total trading volume in early periods when price volatility or liquidity increases. In the presence of transaction fees, traders want to trade less often when either price volatility or liquidity goes up or when the speed of price reversion declines. In the multi-asset case, price effects across assets have a substantial impact on trading behavior. Copyright Springer 2005

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Publisher Info
Article provided by Springer in its journal Review of Finance.

Volume (Year): 9 (2005)
Issue (Month): 2 (06)
Pages: 165-200
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Handle: RePEc:kap:eurfin:v:9:y:2005:i:2:p:165-200

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Other versions of this item:

Article
- Gur Huberman & Werner Stanzl, 2005. "Optimal Liquidity Trading," Review of Finance, Oxford University Press for European Finance Association, vol. 9(2), pages 165-200. [Downloadable!] (restricted)
Paper
- Werner Stanzl & Gur Huberman, 2000. "Optimal Liquidity Trading," Yale School of Management Working Papers ysm165, Yale School of Management. [Downloadable!]

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

Foucault, Thierry & Kadan, Ohad & Kandel, Eugene, 2001. "Limit Order Book as a Market for Liquidity," CEPR Discussion Papers 2889, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Other versions:
- FOUCAULT, Thierry & KADAN, Ohad & KANDEL, Eugene, 2001. "Limit order book as a market for liquidity," Les Cahiers de Recherche 728, HEC Paris. [Downloadable!]
- Thierry Foucault & Ohad Kadan & Eugene Kandel, 2003. "Limit Order Book as a Market for Liquidity," Discussion Paper Series dp321, Center for Rationality and Interactive Decision Theory, Hebrew University, Jerusalem. [Downloadable!]
- Thierry Foucault & Ohad Kadan & Eugene Kandel, 2005. "Limit Order Book as a Market for Liquidity," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 18(4), pages 1171-1217. [Downloadable!] (restricted)
Hans Degryse & Frank Jong & Maarten Ravenswaaij & Gunther Wuyts, 2005. "Aggressive Orders and the Resiliency of a Limit Order Market," Review of Finance, Springer, vol. 9(2), pages 201-242, 06. [Downloadable!] (restricted)
Other versions:
- Degryse, H. & Jong, F. de & Ravenswaaij, M. van & Wuyts, G., 2002. "Aggressive orders and the resiliency of a limit order market," Discussion Paper 80, Tilburg University, Center for Economic Research. [Downloadable!]
- Hans Degryse & Frank De Jong & Maarten Van Ravenswaaij & Gunther Wuyts, 2005. "Aggressive Orders and the Resiliency of a Limit Order Market," Review of Finance, Oxford University Press for European Finance Association, vol. 9(2), pages 201-242. [Downloadable!] (restricted)

Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

Alexander Weiss, 2009. "Executing large orders in a microscopic market model," Quantitative Finance Papers 0904.4131, arXiv.org. [Downloadable!]
Alexander Weiss, 2008. "Escaping the Brownian stalkers," Quantitative Finance Papers 0803.3590, arXiv.org. [Downloadable!]
David Bakstein, 2001. "The Pricing of Derivatives in Illiquid Markets," OFRC Working Papers Series 2001mf05, Oxford Financial Research Centre. [Downloadable!]
Ryosuke Ishii, 2009. "Optimal Execution in an Evolutionary Setting," KIER Working Papers 670, Kyoto University, Institute of Economic Research. [Downloadable!]
David Bakstein & Sam Howison, 2002. "A Risk-Neutral Parametric Liquidity Model for Derivatives," OFRC Working Papers Series 2002mf02, Oxford Financial Research Centre. [Downloadable!]
David B. Brown & Bruce Ian Carlin & Miguel Sousa Lobo, 2009. "On the Scholes Liquidation Problem," NBER Working Papers 15381, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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This page was last updated on 2009-12-9.

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