Optimal liquidation with high risk aversion and small linear price impact

Leonid Dolinskyi () and Yan Dolinsky ()
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Leonid Dolinskyi: National University of Kyiv-Mohyla Academy
Yan Dolinsky: Hebrew University of Jerusalem

Decisions in Economics and Finance, 2024, vol. 47, issue 1, No 7, 183-198

Abstract: Abstract We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options in the case where the investor is required to liquidate her position. Our main result is establishing a non-trivial scaling limit for a vanishing price impact which is inversely proportional to the risk aversion. We compute the limit of the corresponding utility indifference prices and find explicitly a family of portfolios which are asymptotically optimal.

Keywords: Exponential utility; Linear price impact; Optimal liquidation; 91B16; 91G10; 60H30; 91B16; 91G10; 60H30 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10203-024-00435-3

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