Adaptive Basket Liquidation

28 Pages Posted: 16 Feb 2009 Last revised: 4 Sep 2015

See all articles by Torsten Schoeneborn

Torsten Schoeneborn

AHL (Man Investments); University of Oxford - Oxford-Man Institute of Quantitative Finance

Date Written: September 2, 2015

Abstract

We consider the infinite time-horizon optimal basket portfolio liquidation problem for a von Neumann-Morgenstern investor in a multi-asset extension of the liquidity model of Almgren (2003) with cross-asset impact. Using a stochastic control approach, we establish a "separation theorem": the sequence of portfolios held during an optimal liquidation depends only on the (co-)variance and (cross-asset) market impact of the assets, while the speed with which these portfolios are attained depends only on the utility function of the trader. We derive partial differential equations for both the sequence of attained portfolios and the trading speed.

Keywords: Liquidity, illiquid markets, optimal liquidation strategies, basket liquidation, dynamic trading strategies, separation theorem, algorithmic trading, utility maximization

JEL Classification: G10, G12, G14, G20, G33

Suggested Citation

Schoeneborn, Torsten, Adaptive Basket Liquidation (September 2, 2015). Available at SSRN: https://ssrn.com/abstract=1343985 or http://dx.doi.org/10.2139/ssrn.1343985

Torsten Schoeneborn (Contact Author)

AHL (Man Investments) ( email )

Sugar Quay
Lower Thames Street
London, EC3R 6DU
Great Britain

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

Eagle House
Walton Well Road
Oxford, Oxfordshire OX2 6ED
United Kingdom

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