Optimal execution with price impact under Cumulative Prospect Theory
Hongliang Zhu and
Physica A: Statistical Mechanics and its Applications, 2018, vol. 490, issue C, 1228-1237
Optimal execution of a stock (or portfolio) has been widely studied in academia and in practice over the past decade, and minimizing transaction costs is a critical point. However, few researchers consider the psychological factors for the traders. What are traders truly concerned with — buying low in the paper accounts or buying lower compared to others? We consider the optimal trading strategies in terms of the price impact and Cumulative Prospect Theory and identify some specific properties. Our analyses indicate that a large proportion of the execution volume is distributed at both ends of the transaction time. But the trader’s optimal strategies may not be implemented at the same transaction size and speed in different market environments.
Keywords: Optimal execution; Price impact; Reference points; Cumulative Prospect Theory (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only. Journal offers the option of making the article available online on Science direct for a fee of $3,000
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:490:y:2018:i:c:p:1228-1237
Access Statistics for this article
Physica A: Statistical Mechanics and its Applications is currently edited by K. A. Dawson, J. O. Indekeu, H.E. Stanley and C. Tsallis
More articles in Physica A: Statistical Mechanics and its Applications from Elsevier
Series data maintained by Dana Niculescu ().