A sample-path approach to optimal position liquidation

Pavlo Krokhmal () and Stanislav Uryasev ()

Annals of Operations Research, 2007, vol. 152, issue 1, 193-225

Abstract: We consider the problem of optimal position liquidation where the expected cash flow stream due to transactions is maximized in the presence of temporary or permanent market impact. A stochastic programming approach is used to construct trading strategies that differentiate decisions with respect to the observed market conditions, and can accommodate various types of trading constraints. As a scenario model, we use a collection of sample paths representing possible future realizations of state variable processes (price, trading volume etc.), and employ a heuristical technique of sample-path grouping, which can be viewed as a generalization of the standard nonanticipativity constraints. Copyright Springer Science+Business Media, LLC 2007

Keywords: Optimal trading; Market impact; Stochastic programming; Sample paths (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s10479-006-0143-3

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