Year: 2017
Type: preprint
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.
Authors: Yang, Qing-Qing, Ching, Wai-Ki, Gu, Jia-Wen, Wong, Tak Kwong
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2754095441