Utility maximization in an illiquid market

H. Mete Soner; M. Vukelja

doi:10.1080/17442508.2013.795568

Utility maximization in an illiquid market

H. Mete Soner, M. Vukelja

Research output: Contribution to journal › Article › peer-review

3 Scopus citations

Abstract

We consider a stochastic optimization problem of maximizing the expected utility from terminal wealth in an illiquid market. A discrete time model is constructed with few additional state variables. The dynamic programming approach is then developed and used for numerical studies. No-arbitrage conditions were also discussed.

Original language	English (US)
Pages (from-to)	692-706
Number of pages	15
Journal	Stochastics
Volume	85
Issue number	4
DOIs	https://doi.org/10.1080/17442508.2013.795568
State	Published - 2013
Externally published	Yes

All Science Journal Classification (ASJC) codes

Statistics and Probability
Modeling and Simulation

Keywords

dynamic programming
limit order book
liquidity risk
price impact
utility maximization

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10.1080/17442508.2013.795568

Cite this

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title = "Utility maximization in an illiquid market",

abstract = "We consider a stochastic optimization problem of maximizing the expected utility from terminal wealth in an illiquid market. A discrete time model is constructed with few additional state variables. The dynamic programming approach is then developed and used for numerical studies. No-arbitrage conditions were also discussed.",

keywords = "dynamic programming, limit order book, liquidity risk, price impact, utility maximization",

author = "{Mete Soner}, H. and M. Vukelja",

note = "Funding Information: This research was partly supported by the European Research Council under the grant 228053-FiRM, Swiss Finance Institute and by the ETH Foundation.",

year = "2013",

doi = "10.1080/17442508.2013.795568",

language = "English (US)",

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T1 - Utility maximization in an illiquid market

AU - Mete Soner, H.

AU - Vukelja, M.

N1 - Funding Information: This research was partly supported by the European Research Council under the grant 228053-FiRM, Swiss Finance Institute and by the ETH Foundation.

PY - 2013

Y1 - 2013

N2 - We consider a stochastic optimization problem of maximizing the expected utility from terminal wealth in an illiquid market. A discrete time model is constructed with few additional state variables. The dynamic programming approach is then developed and used for numerical studies. No-arbitrage conditions were also discussed.

AB - We consider a stochastic optimization problem of maximizing the expected utility from terminal wealth in an illiquid market. A discrete time model is constructed with few additional state variables. The dynamic programming approach is then developed and used for numerical studies. No-arbitrage conditions were also discussed.

KW - dynamic programming

KW - limit order book

KW - liquidity risk

KW - price impact

KW - utility maximization

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SP - 692

EP - 706

JO - Stochastics

JF - Stochastics

IS - 4

ER -

Utility maximization in an illiquid market

Abstract

All Science Journal Classification (ASJC) codes

Keywords

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