14 Dicembre, 2016 11:00

Sezione di Finanza Quantitativa

Shall I sell or shall I wait? Optimal liquidation under partial information with price impact.

Katia Colaneri, Università di Perugia

Aula Seminari Terzo Piano

We study the problem of a trader who wants to maximize the expected reward from liquidating a given stock position. We model the stock price dynamics as a geometric pure jump process with local characteristics driven by an unobservable finite-state Markov chain and the liquidation rate. This refl ects uncertainty about the state of the market and feedback effects from trading. We use stochastic fi ltering to reduce the optimization
problem under partial information to an equivalent one under complete information. This leads to a control problem for piecewise deterministic Markov processes (in short PDMP).
We apply control theory for PDMPs to our problem. In particular, we derive the optimality equation for the value function and characterize the value function as unique viscosity solution of the associated dynamic programming equation. Finally we provide adetailed analysis on some specific examples.

This is a joint work with Zehra Eksi, Rüdiger Frey and Michaela Szölgyenyi.