Year: 2018
Numerical Mathematics: Theory, Methods and Applications, Vol. 11 (2018), Iss. 4 : pp. 701–728
Abstract
In this paper, we propose a framework for studying optimal agency execution strategies in a Limit Order Book (LOB) under a Markov-modulated market environment. The Almgren-Chriss's market impact model [1] is extended to a more general situation where multiple venues are available for investors to submit trades. Under the assumption of risk-neutrality, a compact recursive formula is derived, using the value iterative method, to calculate the optimal agency execution strategy. The original optimal control problem is then converted to a constrained quadratic optimization problem, which can be solved by using the Quadratic Programming (QP) approach. Numerical examples are given to illustrate the efficiency and effective of our proposed methods.
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Journal Article Details
Publisher Name: Global Science Press
Language: English
DOI: https://doi.org/10.4208/nmtma.2018.s02
Numerical Mathematics: Theory, Methods and Applications, Vol. 11 (2018), Iss. 4 : pp. 701–728
Published online: 2018-01
AMS Subject Headings:
Copyright: COPYRIGHT: © Global Science Press
Pages: 28