Portfolio liquidation under factor uncertainty
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Publication:2117436
Abstract: We study an optimal liquidation problem under the ambiguity with respect to price impact parameters. Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE with superlinear gradient, monotone generator and singular terminal value. We also establish an asymptotic analysis of the robust model for small amount of uncertainty and analyse the effect of robustness on optimal trading strategies and liquidation costs. In particular, in our model ambiguity aversion is observationally equivalent to increased risk aversion. This suggests that ambiguity aversion increases liquidation rates.
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Cited in
(11)- Optimal Execution: A Review
- Dual stochastic descriptions of streamflow dynamics under model ambiguity through a Markovian embedding
- Mean field portfolio games
- Trading foreign exchange triplets
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- Ambiguous price formation
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- Robust dynamic trading with realization utility
- Optimal trade execution under small market impact and portfolio liquidation with semimartingale strategies
- Optimal liquidation with dynamic parameter updating: a forward approach
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