Dynamic optimal execution in a mixed-market-impact Hawkes price model

DOI10.1007/S00780-015-0282-YzbMATH Open1396.91672arXiv1404.0648OpenAlexW2155829786MaRDI QIDQ261925FDOQ261925

Pierre Blanc, Aurélien Alfonsi

Publication date: 29 March 2016

Published in: Finance and Stochastics (Search for Journal in Brave)

Abstract: We study a linear price impact model including other liquidity takers, whose flow of orders either follows a Poisson or a Hawkes process. The optimal execution problem is solved explicitly in this context, and the closed-formula optimal strategy describes in particular how one should react to the orders of other traders. This result enables us to discuss the viability of the market. It is shown that Poissonian arrivals of orders lead to quite robust Price Manipulation Strategies in the sense of Huberman and Stanzl. Instead, a particular set of conditions on the Hawkes model balances the self-excitation of the order flow with the resilience of the price, excludes Price Manipulation Strategies and gives some market stability.

Full work available at URL: https://arxiv.org/abs/1404.0648

zbMATH Keywords

high-frequency tradingHawkes processesmarket impact modelmarket microstructureoptimal executionprice manipulations

Mathematics Subject Classification ID

Point processes (e.g., Poisson, Cox, Hawkes processes) (60G55) Portfolio theory (91G10) Existence theories for optimal control problems involving ordinary differential equations (49J15) Microeconomic theory (price theory and economic markets) (91B24)

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Cited In (18)

• Liquidation with self-exciting price impact
• Title not available (Why is that?)
• A discrete-time optimal execution problem with market prices subject to random environments
• Clustering Effects via Hawkes Processes
• A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy
• Constant proportion portfolio insurance strategies in contagious markets
• Limit equations of adaptive Erlangization and their application to environmental management
• Portfolio liquidation games with self‐exciting order flow
• Optimal liquidation problem in illiquid markets
• Mean field game of controls and an application to trade crowding
• Optimal Market Making with Persistent Order Flow
• Long-Time Behavior of a Hawkes Process--Based Limit Order Book
• PRICE IMPACT OF LARGE ORDERS USING HAWKES PROCESSES
• Discrete homotopy analysis for optimal trading execution with nonlinear transient market impact
• Precise deviations for Hawkes processes
• Exploring the dynamics of financial markets: from stock prices to strategy returns
• Optimal Execution for Uncertain Market Impact: Derivation and Characterization of a Continuous-Time Value Function
• High-Frequency Limit of Nash Equilibria in a Market Impact Game with Transient Price Impact

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