Portfolio liquidation under factor uncertainty
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Publication:2117436
DOI10.1214/21-AAP1672zbMATH Open1484.91424arXiv1909.00748OpenAlexW4214670899MaRDI QIDQ2117436FDOQ2117436
Ulrich Horst, Chao Zhou, Xiaonyu Xia
Publication date: 21 March 2022
Published in: The Annals of Applied Probability (Search for Journal in Brave)
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.
Full work available at URL: https://arxiv.org/abs/1909.00748
uncertaintystochastic controlportfolio liquidationsingular terminal valuesuper-linear growth gradient
Portfolio theory (91G10) Applications of stochastic analysis (to PDEs, etc.) (60H30) Optimal stochastic control (93E20)
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