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Optimal execution with weighted impact functions: a quadratic programming approach

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Abstract

In this paper, we develop optimal trading strategies for a risk averse investor by minimizing the expected cost and the risk of execution. Here we consider a law of motion for price which uses a convex combination of temporary and permanent market impact. In the special case of unconstrained problem for a risk neutral investor, we obtain a closed form solution for optimal trading strategies by using dynamic programming. For a general problem, we use a quadratic programming approach to get approximate dynamic optimal trading strategies. Further, numerical examples of optimal execution strategies are provided for illustration purposes.

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Authors and Affiliations

  1. Global Algorithmic Solutions, TSI, RBS, Gurgaon, 122022, Haryana, India

    Reshma Khemchandani

  2. Department of Mathematics, Indian Institute of Technology, Hauz Khas, New Delhi, 110016, India

    Nishil Gupta, Arpit Chaudhary & Suresh Chandra

Authors
  1. Reshma Khemchandani
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  2. Nishil Gupta
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  3. Arpit Chaudhary
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  4. Suresh Chandra
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Correspondence to Suresh Chandra.

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Khemchandani, R., Gupta, N., Chaudhary, A. et al. Optimal execution with weighted impact functions: a quadratic programming approach. Optim Lett 7, 575–592 (2013). https://doi.org/10.1007/s11590-012-0441-4

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  • DOI: https://doi.org/10.1007/s11590-012-0441-4

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