An optimal execution problem in the volume-dependent Almgren-Chriss model

DOI10.3233/AF-170198MaRDI QIDQ4586459zbMATH OpenOpenAlexFDO

Authors Takashi Kato

Publication date 13 September 2018

Published in Algorithmic Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1701.08972

zbMATH Keywords

market impactvolume-weighted average price (VWAP)optimal execution problemmarket trading volume

Mathematics Subject Classification ID

Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Financial applications of other theories (91G80) Asymptotic expansions of solutions to ordinary differential equations (34E05)

Abstract: In this study, we introduce an explicit trading-volume process into the Almgren-Chriss model, which is a standard model for optimal execution. We propose a penalization method for deriving a verification theorem for an adaptive optimization problem. We also discuss the optimality of the volume-weighted average-price strategy of a risk-neutral trader. Moreover, we derive a second-order asymptotic expansion of the optimal strategy and verify its accuracy numerically.

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(8)

• Optimal execution with uncertain order fills in Almgren-Chriss framework
• A discrete-time optimal execution problem with market prices subject to random environments
• A simple microstructure model based on the Cox-BESQ process with application to optimal execution policy
• Optimal Brokerage Contracts in Almgren–Chriss Model with Multiple Clients
• A pre-trade algorithmic trading model under given volume measures and generic price dynamics
• OPTIMAL TRADE EXECUTION UNDER GEOMETRIC BROWNIAN MOTION IN THE ALMGREN AND CHRISS FRAMEWORK
• VWAP execution as an optimal strategy
• A class of optimal liquidation problem with a nonlinear temporary market impact

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