Optimal Trading Execution with Nonlinear Market Impact: An Alternative Solution Method

Marzo, Massimiliano ; Ritelli, Daniele ; Zagaglia, Paolo (2011) Optimal Trading Execution with Nonlinear Market Impact: An Alternative Solution Method. Bologna: Dipartimento di Scienze economiche DSE, p. 16. DOI 10.6092/unibo/amsacta/4441. In: Quaderni - Working Paper DSE (797). ISSN 2282-6483.
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Abstract

We consider the optimal trade execution strategies for a large portfolio of single stocks proposed by Almgren (2003). This framework accounts for a nonlinear impact of trades on average market prices. The execution strategy of Almgren (2003) is based on the assumption that no shares per unit of time are trade at the beginning of the period. We use a general solution method that accomodates the case of positive initial trades. Our results are twofold. First of all, we show that the problem admits a solution with no trading in the opening period only if additional parametric restrictions are imposed. Second, with positive initial trading, the optimal execution time depends on trading activity in the initial period.

Abstract
Document type
Monograph (Working Paper)
Creators
CreatorsAffiliationORCID
Marzo, Massimiliano
Ritelli, Daniele
Zagaglia, Paolo
Keywords
optimal execution, market impact, trading strategy
Subjects
ISSN
2282-6483
DOI
Deposit date
25 Jan 2016 15:46
Last modified
25 Jan 2016 15:46
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