Optimal Portfolio Liquidation for CARA Investors
Author | : Alexander Schied |
Publisher | : |
Total Pages | : 11 |
Release | : 2015 |
ISBN-10 | : OCLC:1290218809 |
ISBN-13 | : |
Rating | : 4/5 (09 Downloads) |
Book excerpt: We consider the finite-time optimal portfolio liquidation problem for a von Neumann-Morgenstern investor with constant absolute risk aversion (CARA). As underlying market impact model, we use the continuous-time liquidity model of Almgren and Chriss (2000). We show that the expected utility of sales revenues, taken over a large class of adapted strategies, is maximized by a deterministic strategy, which is explicitly given in terms of an analytic formula. The proof relies on the observation that the corresponding value function solves a degenerate Hamilton-Jacobi-Bellman equation with singular initial condition.