Optimal Liquidation Problems in a Randomly-Terminated Horizon
Abstract
In this paper, we study optimal liquidation problems in a randomly-terminated horizon. We consider the liquidation of a large single-asset portfolio with the aim of minimizing a combination of volatility risk and transaction costs arising from permanent and temporary market impact. Three different scenarios are analyzed under Almgren-Chriss's market impact model to explore the relation between optimal liquidation strategies and potential inventory risk arising from the uncertainty of the liquidation horizon. For cases where no closed-form solutions can be obtained, we verify comparison principles for viscosity solutions and characterize the value function as the unique viscosity solution of the associated Hamilton-Jacobi-Bellman (HJB) equation.
Keywords
Cite
@article{arxiv.1709.05837,
title = {Optimal Liquidation Problems in a Randomly-Terminated Horizon},
author = {Qing-Qing Yang and Wai-Ki Ching and Jia-Wen Gu and Tak Kwong Wong},
journal= {arXiv preprint arXiv:1709.05837},
year = {2017}
}