An optimal execution problem in the volume-dependent Almgren–Chriss model

Takashi Kato ()
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Takashi Kato: Association of Mathematical Finance Laboratory (AMFiL), Postal: Chiyoda, Tokyo, Japan

Algorithmic Finance, 2018, vol. 7, issue 1-2, 1-14

Abstract: In this study, we introduce an explicit trading-volume process into the Almgren–Chriss model, which is a standard model for optimal execution. We propose a penalization method for deriving a verification theorem for an adaptive optimization problem. We also discuss the optimality of the volume-weighted average-price strategy of a risk-neutral trader. Moreover, we derive a second-order asymptotic expansion of the optimal strategy and verify its accuracy numerically.

Keywords: Optimal execution problem; market trading volume; volume-weighted average price (VWAP); market impact (search for similar items in EconPapers)
JEL-codes: C00 (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:ris:iosalg:0063

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