Open access
Date
2016-10Type
- Journal Article
Abstract
A utility maximization problem in an illiquid market is studied. The financial market is assumed to have temporary price impact with finite resilience. After the formulation of this problem as a Markovian stochastic optimal control problem a dynamic programming approach is used for its analysis. In particular, the dynamic programming principle is proved and the value function is shown to be the unique discontinuous viscosity solution. This characterization is utilized to obtain numerical results for the optimal strategy and the loss due to illiquidity. Show more
Permanent link
https://doi.org/10.3929/ethz-b-000117125Publication status
publishedExternal links
Journal / series
Mathematical Methods of Operations ResearchVolume
Pages / Article No.
Publisher
SpringerSubject
Comparison theorem; Hamilton–Jacobi–Bellman equation; Liquidity risk; Price impact; Viscosity solution; Weak dynamic programmingOrganisational unit
03844 - Soner, Mete (emeritus) / Soner, Mete (emeritus)
Funding
153555 - Martingale Optimal Transport and Robust Hedging (SNF)
Related publications and datasets
Is new version of: http://hdl.handle.net/20.500.11850/108337
Notes
It was possible to publish this article open access thanks to a Swiss National Licence with the publisher.More
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