Multi-dimensional optimal trade execution under stochastic resilience (Q2274225)

This paper studies a general formulation of multi-dimensional portfolio liquidation problems, in the presence of instantaneous and persistent price impact and stochastic resilience, extending to the multi-dimensional case the setting considered in [\textit{P. Graewe} and \textit{U. Horst}, SIAM J. Control Optim. 55, No. 6, 3707--3725 (2017; Zbl 1386.93307)]. In the model, the fundamental asset price is assumed to be a Brownian martingale with bounded covariance matrix. It is shown that the value function can be described by a system of multi-dimensional backward stochastic Riccati differential equations (BSRDEs) with a singular terminal condition. Once the existence of a solution to the BSRDE system is established, the value function and the optimal strategy can be both characterized in terms of that solution. The paper also considers an approximate solution, given by a sequence of unconstrained problems with increasing penalisation of open positions at the terminal time. Besides other results, the authors obtain a novel estimate for the approximating BSRDE systems, from which the convergence of the optimal trading strategies for the unconstrained models to an admissible liquidation strategy for the original problem can be inferred.