IDEAS home Printed from https://ideas.repec.org/a/bla/mathfi/v28y2018i1p177-210.html
   My bibliography  Save this article

Optimal Liquidation And Adverse Selection In Dark Pools

Author

Listed:
  • Peter Kratz
  • Torsten Schöneborn

Abstract

We consider an investor who has access both to a traditional venue and a dark pool for liquidating a position in a single asset. While trade execution is certain on the traditional exchange, she faces linear price impact costs. On the other hand, dark pool orders suffer from adverse selection and trade execution is uncertain. Adverse selection decreases order sizes in the dark pool while it speeds up trading at the exchange. For small orders, it is optimal to avoid the dark pool completely. Adverse selection can prevent profitable round†trip trading strategies that otherwise would arise if permanent price impact were included in the model.

Suggested Citation

  • Peter Kratz & Torsten Schöneborn, 2018. "Optimal Liquidation And Adverse Selection In Dark Pools," Mathematical Finance, Wiley Blackwell, vol. 28(1), pages 177-210, January.
    • Handle: RePEc:bla:mathfi:v:28:y:2018:i:1:p:177-210
    DOI: 10.1111/mafi.12126
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/mafi.12126
    Download Restriction: no
    File URL: https://libkey.io/10.1111/mafi.12126?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhu, Jianchang & Sun, Xuchu & Li, Tangrong, 2024. "Execution uncertainty of dark pools and portfolio balance," Finance Research Letters, Elsevier, vol. 63(C).
    2. Katia Colaneri & Tiziano De Angelis, 2019. "A class of recursive optimal stopping problems with applications to stock trading," Papers 1905.02650, arXiv.org, revised Jun 2021.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:mathfi:v:28:y:2018:i:1:p:177-210. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0960-1627 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.