Optimal Execution with Nonlinear Impact Functions and Trading-Enhanced Risk

@inproceedings{Almgren2001OptimalEW,
  title={Optimal Execution with Nonlinear Impact Functions and Trading-Enhanced Risk},
  author={Robert Almgren},
  year={2001}
}
We determine optimal trading strategies for liquidation of a large single-asset portfolio to minimize a combination of volatility risk and market impact costs. We take the market impact cost per share to be a power law function of the trading rate, with an arbitrary positive exponent. This includes, for example, the square-root law that has been proposed based on market microstructure theory. In analogy to the linear model, we define a “characteristic time” for optimal trading, which now… CONTINUE READING
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