Optimal Execution with Identity Optionality

DOI10.1080/1350486X.2023.2193343MaRDI QIDQ6040001zbMATH OpenOpenAlexFDO

Authors René Carmona

Publication date 24 May 2023

Published in Applied Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2210.04167

zbMATH Keywords

anonymous tradingconditional propagation of chaosmean field gameoptimal execution

Mathematics Subject Classification ID

Stochastic games, stochastic differential games (91A15) Mean field games (aspects of game theory) (91A16) Applications of game theory (91A80) Financial markets (91G15)

Abstract: This paper investigates the impact of anonymous trading on the agents' strategy in an optimal execution framework. It mainly explores the specificity of order attribution on the Toronto Stock Exchange, where brokers can choose to either trade with their own identity or under a generic anonymous code that is common to all the brokers. We formulate a stochastic differential game for the optimal execution problem of a population of $N$ brokers and incorporate permanent and temporary price impacts for both the identity-revealed and anonymous trading processes. We then formulate the limiting mean-field game of controls with common noise and obtain a solution in closed-form via the probabilistic approach for the Almgren-Chris price impact framework. Finally, we perform a sensitivity analysis to explore the impact of the model parameters on the optimal strategy.

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Cites work

• A probabilistic weak formulation of mean field games and applications
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Cited in

(1)

• Optimal execution with price impact under cumulative prospect theory

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