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Optimal sale strategies in illiquid markets

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  • Martin Dahlgren

Abstract

The value of a position in a risky asset when optimally sold in an illiquid market is considered. The optimization problem is described as a stochastic impulse control problem, and it is shown that it is related to solving a system of quasi-variational inequalities. Existence of a solution to these inequalities are proved. A numerical implementation of the valuation algorithm is discussed and two numerical examples are presented. Further, two examples where the stochastic impulse control problem can be reduced to deterministic optimization problems are also given. Copyright Springer-Verlag 2005

Suggested Citation

  • Martin Dahlgren, 2005. "Optimal sale strategies in illiquid markets," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 61(2), pages 173-190, June.
    • Handle: RePEc:spr:mathme:v:61:y:2005:i:2:p:173-190
    DOI: 10.1007/s00186-005-0421-x
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    Cited by:

    1. M. Dahlgren, 2005. "A Continuous Time Model to Price Commodity-Based Swing Options," Review of Derivatives Research, Springer, vol. 8(1), pages 27-47, June.

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