Optimal execution and block trade pricing: a general framework

DOI10.1080/1350486X.2015.1042188MaRDI QIDQ4682484zbMATH OpenOpenAlexFDO

Authors Olivier Guéant

Publication date 18 September 2018

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

Full work available at URL https://arxiv.org/abs/1210.6372

zbMATH Keywords

block trade pricingHamilton-Jacobi equationsoptimal executionviscosity solutions

Mathematics Subject Classification ID

Viscosity solutions to Hamilton-Jacobi equations in optimal control and differential games (49L25) Portfolio theory (91G10)

Abstract: In this article, we develop a general framework to study optimal execution and to price block trades. We prove existence of optimal liquidation strategies and we provide regularity results for optimal strategies under very general hypotheses. We exhibit a Hamiltonian characterization for the optimal strategy that can be used for numerical approximation. We also focus on the important topic of block trade pricing and we propose a methodology to give a price to financial (il)liquidity. In particular, we provide a closed-form formula for the price of a block trade when there is no time constraint to liquidate.

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Cites work

• A Hamilton-Jacobi-Bellman approach to optimal trade execution
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Cited in

(14)

• Optimal execution with stochastic delay
• Block trading: building up a stock position under a regime switching model
• Portfolio choice, portfolio liquidation, and portfolio transition under drift uncertainty
• Dynamic optimal execution in a mixed-market-impact Hawkes price model
• Multi-asset optimal execution and statistical arbitrage strategies under Ornstein-Uhlenbeck dynamics
• Optimal liquidity-based trading tactics
• Market making with minimum resting times
• General intensity shapes in optimal liquidation
• Option pricing and hedging with execution costs and market impact
• Double-Execution Strategies Using Path Signatures
• Optimal initial coin offering under speculative token trading
• Accelerated Share Repurchases Under Stochastic Volatility
• Optimal trade execution under small market impact and portfolio liquidation with semimartingale strategies
• Optimal liquidation with conditions on minimum price

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