Optimal trade execution with instantaneous price impact and stochastic resilience
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Publication:4596852
DOI10.1137/16M1105463zbMATH Open1386.93307arXiv1611.03435OpenAlexW2562963994MaRDI QIDQ4596852FDOQ4596852
Authors: Paulwin Graewe, Ulrich Horst 
Publication date: 11 December 2017
Published in: SIAM Journal on Control and Optimization (Search for Journal in Brave)
Abstract: We study an optimal execution problem in illiquid markets with both instantaneous and persistent price impact and stochastic resilience when only absolutely continuous trading strategies are admissible. In our model the value function can be described by a three-dimensional system of backward stochastic differential equations (BSDE) with a singular terminal condition in one component. We prove existence and uniqueness of a solution to the BSDE system and characterize both the value function and the optimal strategy in terms of the unique solution to the BSDE system. Our existence proof is based on an asymptotic expansion of the BSDE system at the terminal time that allows us to express the system in terms of a equivalent system with finite terminal value but singular driver.
Full work available at URL: https://arxiv.org/abs/1611.03435
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stochastic controlportfolio liquidationsingular terminal valuemultidimensional backward stochastic differential equation
Stochastic partial differential equations (aspects of stochastic analysis) (60H15) Financial applications of other theories (91G80) Optimal stochastic control (93E20)
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Cited In (29)
- Optimal trade execution in order books with stochastic liquidity
- Optimal trade execution under small market impact and portfolio liquidation with semimartingale strategies
- Mean-field leader-follower games with terminal state constraint
- Càdlàg semimartingale strategies for optimal trade execution in stochastic order book models
- Reducing Obizhaeva-Wang-type trade execution problems to LQ stochastic control problems
- Optimal execution with regime-switching market resilience
- Optimal portfolio execution under time-varying liquidity constraints
- Optimal Execution: A Review
- Optimal trade execution under price-sensitive risk preferences
- On Regularized Optimal Execution Problems and Their Singular Limits
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- When to cross the spread? Trading in two-sided limit order books
- Multi-dimensional optimal trade execution under stochastic resilience
- Optimal trading with transaction costs and short-term predictability
- Optimal trade execution in an order book model with stochastic liquidity parameters
- Portfolio liquidation games with self‐exciting order flow
- Optimal trade execution and price manipulation in order books with time-varying liquidity
- Linear quadratic stochastic control problems with stochastic terminal constraint
- Optimal Trade Execution for Time-Inconsistent Mean-Variance Criteria and Risk Functions
- Mean-field liquidation games with market drop-out
- \(L^p\) solution of backward stochastic differential equations driven by a marked point process
- A mean field game of optimal portfolio liquidation
- Optimal liquidation under stochastic liquidity
- Discrete homotopy analysis for optimal trading execution with nonlinear transient market impact
- Optimal Signal-Adaptive Trading with Temporary and Transient Price Impact
- An explicit optimal strategy for flow trades at NASDAQ around its close
- Optimal trade execution under endogenous pressure to liquidate: theory and numerical solutions
- Optimal order execution under price impact: a hybrid model
- Optimal solution of the liquidation problem under execution and price impact risks
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