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 results of Almgren (2003) are based on the assumption that no shares of assets per unit of time are trade at the beginning of the period. We propose a general solution method that accomodates the case of a positive stock of assets in the initial period. Our findings 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 asset holdings in the initial period, the optimal execution time depends on trading activity at the beginning of the planning period.
|Date of creation:||Nov 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Via Patara, 3, 47921 Rimini (RN)|
Web page: http://www.rcfea.org
More information through EDIRC
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.:
- Jones, C.M. & Lipson, M.L., 1999. "Execution Costs of Institutional Equity Orders," Papers 99-1, Columbia - Graduate School of Business.
- Boucekkine, R. & Ruiz-Tamarit, J.R., 2008.
"Special functions for the study of economic dynamics: The case of the Lucas-Uzawa model,"
Journal of Mathematical Economics,
Elsevier, vol. 44(1), pages 33-54, January.
- 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).
- 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).
- Raouf, BOUCEKKINE & José R. , RUIZ-TAMARIT, 2004. "Special functions for the study of economic dynamics : The case of the Lucas-Uzawa model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004026, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Robert Almgren, 2003. "Optimal execution with nonlinear impact functions and trading-enhanced risk," Applied Mathematical Finance, Taylor & Francis Journals, vol. 10(1), pages 1-18.
- Hasbrouck, Joel & Seppi, Duane J., 2001. "Common factors in prices, order flows, and liquidity," Journal of Financial Economics, Elsevier, vol. 59(3), pages 383-411, March.
- Huang, Roger D & Stoll, Hans R, 1997. "The Components of the Bid-Ask Spread: A General Approach," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 995-1034.
- Jones, Charles M. & Lipson, Marc L., 1999. "Execution Costs of Institutional Equity Orders," Journal of Financial Intermediation, Elsevier, vol. 8(3), pages 123-140, July.
- Kraus, Alan & Stoll, Hans R, 1972. "Price Impacts of Block Trading on the New York Stock Exchange," Journal of Finance, American Finance Association, vol. 27(3), pages 569-88, June.
When requesting a correction, please mention this item's handle: RePEc:rim:rimwps:52_11. 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: (Marco Savioli)
If references are entirely missing, you can add them using this form.