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Optimal trade execution under endogenous pressure to liquidate: theory and numerical solutions

4 April 2017 at 2:30 PM - 3:30 PM

Room 307b, Campus on Viale Romania, 32

Speaker: Ales Cerny, CASS Business School

We study optimal liquidation of a large trading position in a market with a temporary price impact. We endogenize the pressure to liquidate and hence allow the time horizon of liquidation to be determined endogenously, as part of the optimal strategy. The corresponding HJB equation leads to a severely singular initial value problem whose numerical solution we also study. In contrast to much of the existing literature spreading the liquidation strategy over a longer horizon is not necessarily beneficial to the trader.

Joint work with Pavol Brunovský and Ján Komadel, Comenius University Bratislava