Optimal brokerage contracts in Almgren-Chriss model with multiple clients

Guillermo Alonso Alvarez, Sergey Nadtochiy and Kevin Webster

Papers from arXiv.org

Abstract: This paper constructs optimal brokerage contracts for multiple (heterogeneous) clients trading a single asset whose price follows the Almgren-Chriss model. The distinctive features of this work are as follows: (i) the reservation values of the clients are determined endogenously, and (ii) the broker is allowed to not offer a contract to some of the potential clients, thus choosing her portfolio of clients strategically. We find a computationally tractable characterization of the optimal portfolios of clients (up to a digital optimization problem, which can be solved efficiently if the number of potential clients is small) and conduct numerical experiments which illustrate how these portfolios, as well as the equilibrium profits of all market participants, depend on the price impact coefficients.

Date: 2022-04
New Economics Papers: this item is included in nep-cta
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2204.05403

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