A state-constrained differential game arising in optimal portfolio liquidation

DOI10.1111/MAFI.12108MaRDI QIDQ5283403zbMATHOpenAlexFDO

Authors Alexander Schied, Tao Zhang

Publication date 21 July 2017

Published in Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1312.7360

zbMATH Keywords

optimal portfolio liquidationoptimal trade executionilliquid marketsdifferential game with state constraints

Mathematics Subject Classification ID

Portfolio theory (91G10) Differential games (aspects of game theory) (91A23)

Abstract: We consider $n$ risk-averse agents who compete for liquidity in an Almgren--Chriss market impact model. Mathematically, this situation can be described by a Nash equilibrium for a certain linear-quadratic differential game with state constraints. The state constraints enter the problem as terminal boundary conditions for finite and infinite time horizons. We prove existence and uniqueness of Nash equilibria and give closed-form solutions in some special cases. We also analyze qualitative properties of the equilibrium strategies and provide corresponding financial interpretations.

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Cites work

• Efficiency of the price formation process in presence of high frequency participants: a mean field game analysis
• Linear boundary value problems for systems of ordinary differential equations on non compact intervals
• Mean-variance optimal adaptive execution
• Optimal basket liquidation for CARA investors is deterministic
• Optimal execution with nonlinear impact functions and trading-enhanced risk
• Risk aversion and the dynamics of optimal liquidation strategies in illiquid markets

Cited in

(19)

• Optimal trading and competition with information in the price impact model
• An FBSDE approach to market impact games with stochastic parameters
• Portfolio liquidation games with self‐exciting order flow
• scientific article; zbMATH DE number 6727275 (Why is no real title available?)
• Endogenous formation of limit order books: dynamics between trades
• A class of optimal portfolio liquidation problems with a linear decreasing impact
• A Stackelberg order execution game
• Instabilities in multi-asset and multi-agent market impact games
• A Mean Field Game Approach to Equilibrium Pricing with Market Clearing Condition
• Mean-Field Game Strategies for Optimal Execution
• A market impact game under transient price impact
• Optimal liquidation under stochastic liquidity
• Nash equilibria for relative investors with (non)linear price impact
• Mean-field liquidation games with market drop-out
• A class of optimal liquidation problem with a nonlinear temporary market impact
• Stochastic differential game in high frequency market
• A two-player portfolio tracking game
• High-frequency limit of Nash equilibria in a market impact game with transient price impact
• Optimal portfolio execution problem with stochastic price impact

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