TRADING WITH SMALL PRICE IMPACT

Ludovic Moreau, Johannes Muhle-Karbe, H. Mete Soner

Research output: Contribution to journalArticle

19 Scopus citations

Abstract

An investor trades a safe and several risky assets with linear price impact to maximize expected utility from terminal wealth. In the limit for small impact costs, we explicitly determine the optimal policy and welfare, in a general Markovian setting allowing for stochastic market, cost, and preference parameters. These results shed light on the general structure of the problem at hand, and also unveil close connections to optimal execution problems and to other market frictions such as proportional and fixed transaction costs.

Original languageEnglish (US)
Pages (from-to)350-400
Number of pages51
JournalMathematical Finance
Volume27
Issue number2
DOIs
StatePublished - Apr 1 2017
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Accounting
  • Finance
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Applied Mathematics

Keywords

  • asymptotics
  • homogenization
  • portfolio choice
  • price impact
  • viscosity solutions

Fingerprint Dive into the research topics of 'TRADING WITH SMALL PRICE IMPACT'. Together they form a unique fingerprint.

  • Cite this