Massmiliano, Marzo and Daniele, Ritelli and Paolo, Zagaglia (2011): Optimal trading execution with nonlinear market impact: an alternative solution method.
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We consider the optimal trade execution strategies for a large portfolio of single stocks proposed by Almgren (2003). This framework accounts for a nonlinear impact of trades on average market prices. The results of Almgren (2003) are based on the assumption that no shares of assets per unit of time are trade at the beginning of the period. We propose a general solution method that accomodates the case of a positive stock of assets in the initial period. Our findings are twofold. First of all, we show that the problem admits a solution with no trading in the opening period only if additional parametric restrictions are imposed. Second, with positive asset holdings in the initial period, the optimal execution time depends on trading activity at the beginning of the planning period.
|Item Type:||MPRA Paper|
|Original Title:||Optimal trading execution with nonlinear market impact: an alternative solution method|
|Keywords:||optimal execution; market impact; ordinary differential equations|
|Subjects:||G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
G - Financial Economics > G1 - General Financial Markets > G12 - Asset Pricing; Trading volume; Bond Interest Rates
|Depositing User:||Paolo Zagaglia|
|Date Deposited:||13. Dec 2011 21:19|
|Last Modified:||21. Feb 2013 11:44|
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