Optimal Order Scheduling for Deterministic Liquidity Patterns

DOI10.1137/120897511MaRDI QIDQ2940756zbMATH OpenOpenAlexFDO

Authors Peter Bank, Antje Fruth

Publication date 20 January 2015

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1310.3077

zbMATH Keywords

convex analysisconvexificationenvelopesliquidityoptimal order executionorder schedulingsingular control

Mathematics Subject Classification ID

Applications of optimal control and differential games (49N90) Deterministic scheduling theory in operations research (90B35) Convex programming (90C25) Auctions, bargaining, bidding and selling, and other market models (91B26) Actuarial science and mathematical finance (91G99)

Abstract: We consider a broker who has to place a large order which consumes a sizable part of average daily trading volume. The broker's aim is thus to minimize execution costs he incurs from the adverse impact of his trades on market prices. By contrast to the previous literature, see, e.g., Obizhaeva and Wang (2005), Predoiu, Shaikhet, and Shreve (2011), we allow the liquidity parameters of market depth and resilience to vary deterministically over the course of the trading period. The resulting singular optimal control problem is shown to be tractable by methods from convex analysis and, under minimal assumptions, we construct an explicit solution to the scheduling problem in terms of some concave envelope of the resilience adjusted market depth.

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(7)

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• Continuous-time duality for superreplication with transient price impact
• Optimal Trade Execution for Time-Inconsistent Mean-Variance Criteria and Risk Functions
• Optimal trade execution in an order book model with stochastic liquidity parameters
• Reducing Obizhaeva-Wang-type trade execution problems to LQ stochastic control problems
• Multi-asset optimal trade execution with stochastic cross-effects: an Obizhaeva-Wang-type framework
• A model for optimal execution of atomic orders

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