Optimal execution with weighted impact functions: a quadratic programming approach |
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Authors: | Reshma Khemchandani Nishil Gupta Arpit Chaudhary Suresh Chandra |
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Institution: | 1. Global Algorithmic Solutions, TSI, RBS, Gurgaon, 122022, Haryana, India 2. Department of Mathematics, Indian Institute of Technology, Hauz Khas, New Delhi, 110016, India
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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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