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Dynamic trading policies with price impact

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  • He, Hua
  • Mamaysky, Harry

Abstract

In this paper we analyze the optimal policy for a risk averse agent who wants to sell a large block of shares of a risky security in the presence of price impact and transactions costs. Our framework reduces to the standard Merton portfolio problem in the absence of any market frictions. Optimal liquidation results in revenue distributions which are substantially different from those generated by a naive strategy. The main tradeoff involves choosing between revenue distri
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  • He, Hua & Mamaysky, Harry, 2005. "Dynamic trading policies with price impact," Journal of Economic Dynamics and Control, Elsevier, vol. 29(5), pages 891-930, May.
    • Handle: RePEc:eee:dyncon:v:29:y:2005:i:5:p:891-930
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