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Optimal Execution in Illiquid Market with the Absence of Price Manipulation

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http://www.scirp.org/journal/PaperInformation.aspx?PaperID=53355#.VL3P4izQrzE

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ABSTRACT
This article shows the execution performance of the risk-averse institutional trader with constant absolute risk aversion (CARA) type utility by using the condition of no price manipulation defined in the risk neutral sense. From two linear price impact models both satisfying that condition, we have derived the unique explicit optimal execution strategy calculated backwardly with dynamic programming equations. And our study shows that the optimal execution strategy exists in the static class. The derived solution can be decomposed into mainly two components, each giving an explanation of the property of optimal execution volume. Moreover we propose two conditions in order to compare the performance of these two price models, and illustrate that the performances of the two models are surprisingly different under certain conditions.
 
Cite this paper
Kuno, S. and Ohnishi, M. (2015) Optimal Execution in Illiquid Market with the Absence of Price Manipulation. Journal of Mathematical Finance, 5, 1-14. doi: 10.4236/jmf.2015.51001.
 
References
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[7]Schied, A., Schöneborn, T. and Teharanci, M. (2010) Optimal Basket Liquidation for CARA Investors Is Deterministic. Applied Mathematical Finance, 17, 471-489.
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http://dx.doi.org/10.1088/1469-7688/2/4/301                                                           eww150120lx
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