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Asymptotics for Small Nonlinear Price Impact: a PDE Approach to the Multidimensional Case

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  • Erhan Bayraktar
  • Thomas Caye
  • Ibrahim Ekren

Abstract

We provide an asymptotic expansion of the value function of a multidimensional utility maximization problem from consumption with small non-linear price impact. In our model cross-impacts between assets are allowed. In the limit for small price impact, we determine the asymptotic expansion of the value function around its frictionless version. The leading order correction is characterized by a nonlinear second order PDE related to an ergodic control problem and a linear parabolic PDE. We illustrate our result on a multivariate geometric Brownian motion price model.

Suggested Citation

  • Erhan Bayraktar & Thomas Caye & Ibrahim Ekren, 2018. "Asymptotics for Small Nonlinear Price Impact: a PDE Approach to the Multidimensional Case," Papers 1811.06650, arXiv.org, revised Jun 2020.
  • Handle: RePEc:arx:papers:1811.06650
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    References listed on IDEAS

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