Optimal Basket Liquidation for CARA Investors is Deterministic
AbstractWe consider the problem faced by an investor who must liquidate a given basket of assets over a finite time horizon. The investor's goal is to maximize the expected utility of the sales revenues over a class of adaptive strategies. We assume that the investor's utility has constant absolute risk aversion (CARA) and that the asset prices are given by a very general continuous-time, multiasset price impact model. Our main result is that (perhaps surprisingly) the investor does no worse if he narrows his search to deterministic strategies. In the case where the asset prices are given by an extension of the nonlinear price impact model of Almgren [(2003) Applied Mathematical Finance, 10, pp. 1-18], we characterize the unique optimal strategy via the solution of a Hamilton equation and the value function via a nonlinear partial differential equation with singular initial condition.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.
Volume (Year): 17 (2010)
Issue (Month): 6 ()
Contact details of provider:
Web page: http://www.tandfonline.com/RAMF20
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Olivier Gu\'eant & Guillaume Royer, 2013. "VWAP execution and guaranteed VWAP," Papers 1306.2832, arXiv.org, revised May 2014.
- Mauricio Junca, 2011. "Stochastic impulse control on optimal execution with price impact and transaction cost," Papers 1103.3482, arXiv.org, revised Jan 2013.
- Olivier Gu\'eant & Charles-Albert Lehalle, 2012. "General Intensity Shapes in Optimal Liquidation," Papers 1204.0148, arXiv.org, revised Jun 2013.
- Olivier Gu\'eant, 2012. "Optimal execution and block trade pricing: a general framework," Papers 1210.6372, arXiv.org, revised Jul 2014.
- Aur\'elien Alfonsi & Alexander Schied & Florian Kl\"ock, 2013. "Multivariate transient price impact and matrix-valued positive definite functions," Papers 1310.4471, arXiv.org, revised May 2014.
- Alexander Schied & Tao Zhang, 2013. "A state-constrained differential game arising in optimal portfolio liquidation," Papers 1312.7360, arXiv.org, revised May 2014.
- Olivier Gu\'eant, 2013. "Permanent market impact can be nonlinear," Papers 1305.0413, arXiv.org, revised Mar 2014.
- Olivier Gu\'eant, 2012. "Execution and block trade pricing with optimal constant rate of participation," Papers 1210.7608, arXiv.org, revised Dec 2013.
- Olivier Gu\'eant & Jiang Pu, 2013. "Option pricing and hedging with execution costs and market impact," Papers 1311.4342, arXiv.org, revised Jan 2014.
- Ludovic Moreau & Johannes Muhle-Karbe & H. Mete Soner, 2014. "Trading with Small Price Impact," Papers 1402.5304, arXiv.org.
- Olivier Gu\'eant & Jiang Pu & Guillaume Royer, 2013. "Accelerated Share Repurchase: pricing and execution strategy," Papers 1312.5617, arXiv.org, revised Jan 2014.
- Forsyth, P.A. & Kennedy, J.S. & Tse, S.T. & Windcliff, H., 2012. "Optimal trade execution: A mean quadratic variation approach," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1971-1991.
- Aurélien Alfonsi & Alexander Schied, 2010. "Optimal trade execution and absence of price manipulations in limit order book models," Post-Print hal-00397652, HAL.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If references are entirely missing, you can add them using this form.