Mathematical Formulation of an Optimal Execution Problem with Uncertain Market Impact

Kensuke Ishitani and Takashi Kato

Papers from arXiv.org

Abstract: We study an optimal execution problem with uncertain market impact to derive a more realistic market model. We construct a discrete-time model as a value function for optimal execution. Market impact is formulated as the product of a deterministic part increasing with execution volume and a positive stochastic noise part. Then, we derive a continuous-time model as a limit of a discrete-time value function. We find that the continuous-time value function is characterized by a stochastic control problem with a Levy process.

Date: 2013-01, Revised 2015-06
New Economics Papers: this item is included in nep-mst and nep-upt
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Published in Communications on Stochastic Analysis 9(1), 113-129 (2015)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1301.6485

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