A sample-path approach to optimal position liquidation

Pavlo Krokhmal, Stanislav Uryasev

Research output: Contribution to journalArticle

7 Scopus citations

Abstract

We consider the problem of optimal position liquidation where the expected cash flow stream due to transactions is maximized in the presence of temporary or permanent market impact. A stochastic programming approach is used to construct trading strategies that differentiate decisions with respect to the observed market conditions, and can accommodate various types of trading constraints. As a scenario model, we use a collection of sample paths representing possible future realizations of state variable processes (price, trading volume etc.), and employ a heuristical technique of sample-path grouping, which can be viewed as a generalization of the standard nonanticipativity constraints.

Original languageEnglish (US)
Pages (from-to)193-225
Number of pages33
JournalAnnals of Operations Research
Volume152
Issue number1
DOIs
StatePublished - Jul 1 2007
Externally publishedYes

Keywords

  • Market impact
  • Optimal trading
  • Sample paths
  • Stochastic programming

ASJC Scopus subject areas

  • Decision Sciences(all)
  • Management Science and Operations Research

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