Abstract

http://ssrn.com/abstract=2150878
 


 



Optimal Trade Execution with Coherent Dynamic Risk Measures


Qihang Lin


Carnegie Mellon University - David A. Tepper School of Business

Javier F. Peña


affiliation not provided to SSRN

August 10, 2012


Abstract:     
We study the problem of optimal trade execution in an illiquid market by minimizing the coherent dynamic risk of the implementation shortfall. The prices of the assets are modeled as a discrete-time Markov process perturbed by both temporal and permanent impacts related to the trading volume. A closed-form optimal strategy is obtained for liquidating a single asset. In the case of multiple assets, we show that the optimal execution problem is equivalent to a saddle-point problem, for which efficient first-order methods are utilized to compute the optimal strategy numerically.

Number of Pages in PDF File: 35

Keywords: optimal trade execution, coherent dynamic risk measure, saddle-point problem

working papers series





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Date posted: September 23, 2012  

Suggested Citation

Lin, Qihang and Peña, Javier F., Optimal Trade Execution with Coherent Dynamic Risk Measures (August 10, 2012). Available at SSRN: http://ssrn.com/abstract=2150878 or http://dx.doi.org/10.2139/ssrn.2150878

Contact Information

Qihang Lin (Contact Author)
Carnegie Mellon University - David A. Tepper School of Business ( email )
5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Javier F. Peña
affiliation not provided to SSRN ( email )
Feedback to SSRN


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