Dynamic optimal execution in a mixed-market-impact Hawkes price model
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Publication:261925
DOI10.1007/S00780-015-0282-YzbMATH Open1396.91672arXiv1404.0648OpenAlexW2155829786MaRDI QIDQ261925FDOQ261925
Authors: Aurélien Alfonsi, Pierre Blanc 
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
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high-frequency tradingHawkes processesmarket impact modelmarket microstructureoptimal executionprice manipulations
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 (31)
- Liquidation with self-exciting price impact
- Hawkes model for price and trades high-frequency dynamics
- Optimal execution with regime-switching market resilience
- Price impact of large orders using Hawkes processes
- Long-time behavior of a Hawkes process-based limit order book
- Characterising trader manipulation in a limit-order driven market
- Endogenous liquidity crises
- A discrete-time optimal execution problem with market prices subject to random environments
- Apparent impact: the hidden cost of one-shot trades
- Optimal execution with non-linear transient market impact
- Self-exciting price impact via negative resilience in stochastic order books
- Applications of microscopic modelling in finance
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- A market impact game under transient price impact
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- Clustering effects via Hawkes processes
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- Precise deviations for Hawkes processes
- Price manipulation in a market impact model with dark pool
- 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
- Optimal market making with persistent order flow
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