Optimal portfolio liquidation with additional information
We consider the problem of how to optimally close a large asset position in a market with a linear temporary price impact. We take the perspective of an agent who obtains a signal about the future price evolvement. By means of classical stochastic control we derive explicit formulas for the closing strategy that minimizes the expected execution costs. We compare agents observing the signal with agents who do not see it. We compute explicitly the expected additional gain due to the signal, and perform a comparative statics analysis.
KeywordsOptimal liquidation Price impact Additional information Enlargement of filtration HJB equation
- 1.Almgren, R., Chriss, N.: Optimal execution of portfolio transactions. J. Risk 3, 5–39 (2000)Google Scholar
- 5.Ankirchner, S., Imkeller, P.: Financial markets with asymmetric information: information drift, additional utility and entropy. In Stochastic processes and applications to mathematical finance, pp. 1–21. World Sci. Publ., Hackensack (2007)Google Scholar
- 6.Baudoin, F.: Modeling Anticipations on Financial Markets. In Paris-Princeton Lectures on Mathematical Finance, 2002, Volume 1814 of Lecture Notes in Math, pp. 43–94. Springer, Berlin (2003)Google Scholar
- 14.Mansuy, R., Yor, M.: Random Times and Enlargements of Filtrations in a Brownian Setting, Volume 1873 of Lecture Notes in Mathematics. Springer-Verlag, Berlin (2006)Google Scholar