Optimal Execution and Price Manipulations in Time-varying Limit Order Books

Aurélien Alfonsi and José Infante Acevedo

Applied Mathematical Finance, 2014, vol. 21, issue 3, 201-237

Abstract: This paper focuses on an extension of the limit order book (LOB) model with general shape introduced by Alfonsi, Fruth and Schied ((2010). Optimal execution strategies in limit order books with general shape functions. Quantitative Finance , 10 (2), 143-157). Here, the additional feature allows a time-varying LOB depth. We solve the optimal execution problem in this framework for both discrete and continuous time strategies. This gives in particular sufficient conditions to exclude price manipulations in the sense of Huberman and Stanzl ((2004). Price manipulation and quasi-arbitrage. Econometrica , 72 (4), 1247-1275) or transaction-triggered price manipulations (see Alfonsi, A., Schied, A., & Slynko, A. (2012). Order book resilience, prince manipulation, and the positive portfolio problem. SIAM Journal of Financial Mathematics, 3, 511-533.). These conditions give interesting qualitative insights on how market makers may create or not price manipulations.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://hdl.handle.net/10.1080/1350486X.2013.845471 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:apmtfi:v:21:y:2014:i:3:p:201-237

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAMF20

DOI: 10.1080/1350486X.2013.845471

Access Statistics for this article

Applied Mathematical Finance is currently edited by Professor Ben Hambly and Christoph Reisinger

More articles in Applied Mathematical Finance from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().