Optimal Portfolio Liquidation with Limit Orders

Olivier Guéant, Charles-Albert Lehalle and Joaquin Fernandez Tapia
Additional contact information
Joaquin Fernandez Tapia: LPMA - Laboratoire de Probabilités et Modèles Aléatoires - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique

Post-Print from HAL

Abstract: This paper addresses the optimal scheduling of the liquidation of a portfolio using a new angle. Instead of focusing only on the scheduling aspect like Almgren and Chriss, or only on the liquidity-consuming orders like Obizhaeva and Wang, we link the optimal trade-schedule to the price of the limit orders that have to be sent to the limit order book to optimally liquidate a portfolio. Most practitioners address these two issues separately: they compute an optimal trading curve and they then send orders to the markets to try to follow it. The results obtained here solve simultaneously the two problems. As in a previous paper that solved the "intra-day market making problem", the interactions of limit orders with the market are modeled via a Poisson process pegged to a diffusive "fair price" and a Hamilton-Jacobi-Bellman equation is used to solve the problem involving both non-execution risk and price risk. Backtests are carried out to exemplify the use of our results, both on long periods of time (for the entire liquidation process) and on slices of 5 minutes (to follow a given trading curve).

Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (62)

Published in SIAM Journal on Financial Mathematics, 2012, 3 (1), pp.740-764. ⟨10.1137/110850475⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Working Paper: Optimal Portfolio Liquidation with Limit Orders (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01393114

DOI: 10.1137/110850475

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().