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 language | English (US) |
|---|---|
| Pages (from-to) | 193-225 |
| Number of pages | 33 |
| Journal | Annals of Operations Research |
| Volume | 152 |
| Issue number | 1 |
| DOIs | |
| State | Published - Jul 1 2007 |
| Externally published | Yes |
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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Cite this
Krokhmal, P., & Uryasev, S. (2007). A sample-path approach to optimal position liquidation. Annals of Operations Research, 152(1), 193-225. https://doi.org/10.1007/s10479-006-0143-3