What if we knew what the future brings? Optimal investment for a frontrunner with price impact
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Publication:2156348
DOI10.1007/S00245-022-09885-WzbMATH Open1497.91271arXiv2108.04291OpenAlexW4286632104MaRDI QIDQ2156348FDOQ2156348
Yan Dolinsky, Miklós Rásonyi, Peter Bank
Publication date: 18 July 2022
Published in: Applied Mathematics and Optimization (Search for Journal in Brave)
Abstract: In this paper we study optimal investment when the investor can peek some time units into the future, but cannot fully take advantage of this knowledge because of quadratic transaction costs. In the Bachelier setting with exponential utility, we give an explicit solution to this control problem with intrinsically infinite-dimensional memory. This is made possible by solving the dual problem where we make use of the theory of Gaussian Volterra integral equations.
Full work available at URL: https://arxiv.org/abs/2108.04291
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price impactinside informationexponential utilityoptimal investmentGaussian Volterra integral equation
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