Cookies?
Library Header Image
LSE Research Online LSE Library Services

Optimal execution with multiplicative price impact

Guo, Xin and Zervos, Mihail (2015) Optimal execution with multiplicative price impact. SIAM Journal on Financial Mathematics, 6 (1). pp. 281-306. ISSN 1945-497X

[img]
Preview
PDF - Published Version
Download (437kB) | Preview
Identification Number: 10.1137/120894622

Abstract

We consider the so-called optimal execution problem in algorithmic trading, which is the problem faced by an investor who has a large number of stock shares to sell over a given time horizon and whose actions have an impact on the stock price. In particular, we develop and study a price model that presents the stochastic dynamics of a geometric Brownian motion and incorporates a log-linear effect of the investor’s transactions. We then formulate the optimal execution problem as a degenerate singular stochastic control problem. Using both analytic and probabilistic techniques, we establish simple conditions for the market to allow for no arbitrage or price manipulation and develop a detailed characterization of the value function and the optimal strategy. In particular, we derive an explicit solution to the problem if the time horizon is infinite.

Item Type: Article
Official URL: http://epubs.siam.org/loi/sjfmbj
Additional Information: © 2015 Society for Industrial and Applied Mathematics
Divisions: Mathematics
Subjects: Q Science > QA Mathematics
Sets: Departments > Mathematics
Date Deposited: 18 Feb 2016 16:57
Last Modified: 20 Jul 2019 02:04
URI: http://eprints.lse.ac.uk/id/eprint/65409

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics