Trading against disorderly liquidation of a large position under asymmetric information and market impact

DOI10.1051/PROC/201756042zbMATH Open1407.91223arXiv1610.01937OpenAlexW3125533907MaRDI QIDQ4606384FDOQ4606384

Cody Blaine Hyndman, Ying Jiao, Renjie Wang, Caroline Hillairet

Publication date: 7 March 2018

Published in: ESAIM: Proceedings and Surveys (Search for Journal in Brave)

Abstract: We consider trading against a hedge fund or large trader that must liquidate a large position in a risky asset if the market price of the asset crosses a certain threshold. Liquidation occurs in a disorderly manner and negatively impacts the market price of the asset. We consider the perspective of small investors whose trades do not induce market impact and who possess different levels of information about the liquidation trigger mechanism and the market impact. We classify these market participants into three types: fully informed, partially informed and uninformed investors. We consider the portfolio optimization problems and compare the optimal trading and wealth processes for the three classes of investors theoretically and by numerical illustrations.

Full work available at URL: https://arxiv.org/abs/1610.01937

Recommendations

• Optimal Liquidation by a Large Investor
• Dynamic trading policies with price impact
• Optimal portfolio liquidation with additional information
• Optimal execution with nonlinear impact functions and trading-enhanced risk
• Optimal liquidation under stochastic price impact

zbMATH Keywords

optimal tradingportfolio optimizationasymmetric informationmarket impactdisorderly liquidation

Mathematics Subject Classification ID

Portfolio theory (91G10) Utility theory (91B16)

Cites Work

• A monetary value for initial information in portfolio optimization
• Additional logarithmic utility of an insider
• Optimal portfolio liquidation with additional information
• A regression-based Monte Carlo method to solve backward stochastic differential equations
• Title not available (Why is that?)
• Title not available (Why is that?)
• Title not available (Why is that?)
• Liquidity Models in Continuous and Discrete Time
• Mathematical methods for financial markets.
• Stochastic differential equations for the non linear filtering problem
• Optimal investment under partial information
• Martingale representation theorems for initially enlarged filtrations.
• Continuous Auctions and Insider Trading
• Bayesian adaptive portfolio optimization
• Incomplete markets with jumps and informed agents
• Portfolio optimization and contingent claim pricing with differential information

This page was built for publication: Trading against disorderly liquidation of a large position under asymmetric information and market impact

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4606384)