Research Seminar by Mihail Zervos (LSE)
Speaker: Mihail Zervos (LSE)
Theme: "Optimal Execution with Multiplicative Price Impact"
On Thursday, November 13 at 4.40 pm International College of Economics and Finance held the Research Seminar in Finance.
Speaker: Mihail Zervos (LSE)
Theme: "Optimal Execution with Multiplicative Price Impact"
Venue: Shabolovka st., 26, room 3211
Abstract: We consider the so-called ``optimal execution problem'' in algorithmic trading, which is the problem faced by an investor who has a large number of stock shares to sell over a given time horizon and whose actions have impact on the stock price. In particular, we develop and study a price model that presents the stochastic dynamics of a geometric Brownian motion and incorporates a log-linear effect of the investor's transactions. We then formulate the optimal execution problem as a two-dimensional degenerate singular stochastic control problem. Using both analytic and probabilistic techniques, we establish simple conditions for the market to allow for no price manipulation and we develop a detailed characterisation of the value function and the optimal strategy. In particular, we derive an explicit solution to the problem if the time horizon is infinite.