An Optimal Execution Problem in Geometric Ornstein-Uhlenbeck Price Process
AbstractWe study the optimal execution problem in the presence of market impact and give a generalization of the main result of Kato(2009). Then we consider an example where the security price follows a geometric Ornstein-Uhlenbeck process which has the so-called mean-reverting property, and then show that an optimal strategy is a mixture of initial/terminal block liquidation and intermediate gradual liquidation. When the security price has no volatility, the form of our optimal strategy is the same as results of Obizhaeva and Wang(2005) and Alfonsi et al.(2010), who studied the optimal execution in a limit-order-book model.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1107.1787.
Date of creation: Jul 2011
Date of revision: May 2012
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