Optimal Trading Execution with Nonlinear Market Impact: An Alternative Solution Method
We consider the optimal trade execution strategies for a large portfolio of single stocks proposed by Almgren (2003). This framework accounts for a nonlinear impact of trades on average market prices. The execution strategy of Almgren (2003) is based on the assumption that no shares per unit of time are trade at the beginning of the period. We use a general solution method that accomodates the case of positive initial trades. Our results are twofold. First of all, we show that the problem admits a solution with no trading in the opening period only if additional parametric restrictions are imposed. Second, with positive initial trading, the optimal execution time depends on trading activity in the initial period.
|Date of creation:||Nov 2011|
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- Boucekkine, R. & Ruiz-Tamarit, J.R., 2008.
"Special functions for the study of economic dynamics: The case of the Lucas-Uzawa model,"
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- BOUCEKKINE, Raouf & RUIZ-TAMARIT, Ramon, 2004. "Special functions for the study of economic dynamics: The case of the Lucas-Uzawa model," CORE Discussion Papers 2004084, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- BOUCEKKINE, Raouf & RUIZ-TAMARIT, José Ramon, . "Special functions for the study of economic dynamics: The case of the Lucas-Uzawa model," CORE Discussion Papers RP 2003, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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