Optimal Liquidation With Signals: The General Propagator Case

Eduardo Abi Jaber and Eyal Neuman

Mathematical Finance, 2025, vol. 35, issue 4, 841-866

Abstract: We consider a class of optimal liquidation problems where the agent's transactions create transient price impact driven by a Volterra‐type propagator along with temporary price impact. We formulate these problems as maximization of a revenue‐risk functionals, where the agent also exploits available information on a progressively measurable price predicting signal. By using an infinite dimensional stochastic control approach, we characterize the value function in terms of a solution to a free‐boundary L2$L^2$‐valued backward stochastic differential equation and an operator‐valued Riccati equation. We then derive analytic solutions to these equations, which yields an explicit expression for the optimal trading strategy. We show that our formulas can be implemented in a straightforward and efficient way for a large class of price impact kernels with possible singularities such as the power‐law kernel.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1111/mafi.12465

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:bla:mathfi:v:35:y:2025:i:4:p:841-866

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0960-1627

Access Statistics for this article

Mathematical Finance is currently edited by Jerome Detemple

More articles in Mathematical Finance from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().