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Utility Maximization in an Illiquid Market

Author

Listed:
  • Halil Mete Soner

    (ETH Zürich; Swiss Finance Institute)

  • Mirjana Vukelja

    (Independent)

Abstract

We consider a stochastic optimization problem of maximizing the expected utility from terminal wealth in an illiquid market. A discrete time model is constructed with few additional state variables. The dynamic programming approach is then developed and used for numerical studies. No-arbitrage conditions were also discussed.

Suggested Citation

  • Halil Mete Soner & Mirjana Vukelja, 2013. "Utility Maximization in an Illiquid Market," Swiss Finance Institute Research Paper Series 13-17, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp1317
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    File URL: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2247328
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    Citations

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    Cited by:

    1. Ariel Neufeld & Mario Šikić, 2019. "Nonconcave robust optimization with discrete strategies under Knightian uncertainty," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 90(2), pages 229-253, October.
    2. Ariel Neufeld & Mario Sikic, 2017. "Nonconcave Robust Optimization with Discrete Strategies under Knightian Uncertainty," Papers 1711.03875, arXiv.org, revised Apr 2019.
    3. H. Mete Soner & Mirjana Vukelja, 2016. "Utility maximization in an illiquid market in continuous time," Mathematical Methods of Operations Research, Springer;Gesellschaft für Operations Research (GOR);Nederlands Genootschap voor Besliskunde (NGB), vol. 84(2), pages 285-321, October.
    4. Kenneth Bruhn & Ninna Reitzel Jensen & Mogens Steffensen, 2016. "Smooth investment," Annals of Finance, Springer, vol. 12(3), pages 335-361, December.

    More about this item

    Keywords

    Liquidity risk; limit order book; price impact; utility maximization; dynamic programming;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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