Optimal Liquidation in a Finite Time Regime Switching Model with Permanent and Temporary Pricing Impact
In this paper we discuss the optimal liquidation over a finite time horizon until the exit time. The drift and diffusion terms of the asset price are general functions depending on all variables including control and market regime. There is also a local nonlinear transaction cost associated to the liquidation. The model deals with both the permanent impact and the temporary impact in a regime switching framework. The problem can be solved with the dynamic programming principle. The optimal value function is the unique continuous viscosity solution to the HJB equation and can be computed with the finite difference method.
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.:
- Elyès Jouini, 1997.
"Price Functionals with Bid-Ask Spreads : An Axiomatic Approach,"
97-05, Centre de Recherche en Economie et Statistique.
- Jouini, Elyes, 2000. "Price functionals with bid-ask spreads: an axiomatic approach," Journal of Mathematical Economics, Elsevier, vol. 34(4), pages 547-558, December.
- Elyès Jouini, 1999. "Price Functionals with Bid-Ask Spreads: An Axiomatic Approach," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-038, New York University, Leonard N. Stern School of Business-.
- Moustapha Pemy & Qing Zhang & G. George Yin, 2008. "Liquidation Of A Large Block Of Stock With Regime Switching," Mathematical Finance, Wiley Blackwell, vol. 18(4), pages 629-648.
- Pemy, M. & Zhang, Q. & Yin, G., 2007. "Liquidation of a large block of stock," Journal of Banking & Finance, Elsevier, vol. 31(5), pages 1295-1305, May.
- Umut Çetin & Robert Jarrow & Philip Protter, 2004. "Liquidity risk and arbitrage pricing theory," Finance and Stochastics, Springer, vol. 8(3), pages 311-341, 08.
- Paul Gassiat & Fausto Gozzi & Huyen Pham, 2011.
"Investment/consumption problem in illiquid markets with regimes switching,"
- Paul Gassiat & Fausto Gozzi & Huy\^en Pham, 2011. "Investment/consumption problem in illiquid markets with regime-switching," Papers 1107.4210, arXiv.org, revised Apr 2012.
- Jaksa Cvitanić & Ioannis Karatzas, 1996. "HEDGING AND PORTFOLIO OPTIMIZATION UNDER TRANSACTION COSTS: A MARTINGALE APPROACH-super-2," Mathematical Finance, Wiley Blackwell, vol. 6(2), pages 133-165.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:1212.3145. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.