A convex duality method for optimal liquidation with participation constraints

Olivier Gu\'eant, Jean-Michel Lasry and Jiang Pu

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Abstract: In spite of the growing consideration for optimal execution in the financial mathematics literature, numerical approximations of optimal trading curves are almost never discussed. In this article, we present a numerical method to approximate the optimal strategy of a trader willing to unwind a large portfolio. The method we propose is very general as it can be applied to multi-asset portfolios with any form of execution costs, including a bid-ask spread component, even when participation constraints are imposed. Our method, based on convex duality, only requires Hamiltonian functions to have $C^{1,1}$ regularity while classical methods require additional regularity and cannot be applied to all cases found in practice.

Date: 2014-07, Revised 2014-12
New Economics Papers: this item is included in nep-cmp
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