American Institute of Mathematical Sciences

Advanced
April  2006, 2(2): 135-144. doi: 10.3934/jimo.2006.2.135

Optimal execution strategy of liquidation

Ka Wo Lau 1, and  Yue Kuen Kwok 2,

1. 

Citigroup, Hong Kong, China
2. 

Hong Kong University of Science and Technology, Clear Water Bay, Hong Kong, China

Received  April 2005 Revised  September 2005 Published  April 2006

Liquidity risks arise from the presence of time lags on execution of market orders in trading securities and ''quantity'' effect (liquidation discount) on security price. In this paper, we consider an investor who is holding a portfolio of stock and cash (in the form of market money account) with the objective to unwind his position on the risky asset so that the expected value of cash at the end of a fixed time horizon is maximized. Assuming that the executive time lags and liquidation discount are deterministic, we construct the numerical algorithms for computing the optimal trading strategy that maximizes the expected terminal value of cash position in the portfolio. We also investigate the probability of meeting the target cash level under different liquidation discount functions.
Keywords: Optimal execution strategy, execution time lags., liquidation discount.
Mathematics Subject Classification: 91B2.
Citation: Ka Wo Lau, Yue Kuen Kwok. Optimal execution strategy of liquidation. Journal of Industrial & Management Optimization, 2006, 2 (2) : 135-144. doi: 10.3934/jimo.2006.2.135
[1]

Guibin Lu, Qiying Hu, Youying Zhou, Wuyi Yue. Optimal execution strategy with an endogenously determined sales period. Journal of Industrial & Management Optimization, 2005, 1 (3) : 289-304. doi: 10.3934/jimo.2005.1.289
[2]

Jin Ma, Xinyang Wang, Jianfeng Zhang. Dynamic equilibrium limit order book model and optimal execution problem. Mathematical Control & Related Fields, 2015, 5 (3) : 557-583. doi: 10.3934/mcrf.2015.5.557
[3]

Gongpin Cheng, Lin Xu. Optimal size of business and dividend strategy in a nonlinear model with refinancing and liquidation value. Mathematical Control & Related Fields, 2017, 7 (1) : 1-19. doi: 10.3934/mcrf.2017001
[4]

Baojun Bian, Nan Wu, Harry Zheng. Optimal liquidation in a finite time regime switching model with permanent and temporary pricing impact. Discrete & Continuous Dynamical Systems - B, 2016, 21 (5) : 1401-1420. doi: 10.3934/dcdsb.2016002
[5]

Ka Chun Cheung, Hailiang Yang. Optimal investment-consumption strategy in a discrete-time model with regime switching. Discrete & Continuous Dynamical Systems - B, 2007, 8 (2) : 315-332. doi: 10.3934/dcdsb.2007.8.315
[6]

Fengjun Wang, Qingling Zhang, Bin Li, Wanquan Liu. Optimal investment strategy on advertisement in duopoly. Journal of Industrial & Management Optimization, 2016, 12 (2) : 625-636. doi: 10.3934/jimo.2016.12.625
[7]

Zhenwei Luo, Jinting Wang. The optimal price discount, order quantity and minimum quantity in newsvendor model with group purchase. Journal of Industrial & Management Optimization, 2015, 11 (1) : 1-11. doi: 10.3934/jimo.2015.11.1
[8]

Yiju Wang, Wei Xing, Hengxia Gao. Optimal ordering policy for inventory mechanism with a stochastic short-term price discount. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-16. doi: 10.3934/jimo.2018199
[9]

Yujing Wang, Changjun Yu, Kok Lay Teo. A new computational strategy for optimal control problem with a cost on changing control. Numerical Algebra, Control & Optimization, 2016, 6 (3) : 339-364. doi: 10.3934/naco.2016016
[10]

Jingang Zhai, Guangmao Jiang, Jianxiong Ye. Optimal dilution strategy for a microbial continuous culture based on the biological robustness. Numerical Algebra, Control & Optimization, 2015, 5 (1) : 59-69. doi: 10.3934/naco.2015.5.59
[11]

Yuxue Li, Maozhu Jin, Peiyu Ren, Zhixue Liao. Research on the optimal initial shunt strategy of Jiuzhaigou based on the optimization model. Discrete & Continuous Dynamical Systems - S, 2015, 8 (6) : 1239-1249. doi: 10.3934/dcdss.2015.8.1239
[12]

Lv Chen, Hailiang Yang. Optimal reinsurance and investment strategy with two piece utility function. Journal of Industrial & Management Optimization, 2017, 13 (2) : 737-755. doi: 10.3934/jimo.2016044
[13]

Heman Shakeri, Faryad Darabi Sahneh, Caterina Scoglio, Pietro Poggi-Corradini, Victor M. Preciado. Optimal information dissemination strategy to promote preventive behaviors in multilayer epidemic networks. Mathematical Biosciences & Engineering, 2015, 12 (3) : 609-623. doi: 10.3934/mbe.2015.12.609
[14]

Siyu Liu, Xue Yang, Yingjie Bi, Yong Li. Dynamic behavior and optimal scheduling for mixed vaccination strategy with temporary immunity. Discrete & Continuous Dynamical Systems - B, 2019, 24 (4) : 1469-1483. doi: 10.3934/dcdsb.2018216
[15]

Jiaqin Wei, Danping Li, Yan Zeng. Robust optimal consumption-investment strategy with non-exponential discounting. Journal of Industrial & Management Optimization, 2020, 16 (1) : 207-230. doi: 10.3934/jimo.2018147
[16]

Dingjun Yao, Rongming Wang, Lin Xu. Optimal dividend and capital injection strategy with fixed costs and restricted dividend rate for a dual model. Journal of Industrial & Management Optimization, 2014, 10 (4) : 1235-1259. doi: 10.3934/jimo.2014.10.1235
[17]

Gongpin Cheng, Rongming Wang, Dingjun Yao. Optimal dividend and capital injection strategy with excess-of-loss reinsurance and transaction costs. Journal of Industrial & Management Optimization, 2018, 14 (1) : 371-395. doi: 10.3934/jimo.2017051
[18]

Haibo Jin, Long Hai, Xiaoliang Tang. An optimal maintenance strategy for multi-state systems based on a system linear integral equation and dynamic programming. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-26. doi: 10.3934/jimo.2018188
[19]

Po-Chung Yang, Hui-Ming Wee, Shen-Lian Chung, Yong-Yan Huang. Pricing and replenishment strategy for a multi-market deteriorating product with time-varying and price-sensitive demand. Journal of Industrial & Management Optimization, 2013, 9 (4) : 769-787. doi: 10.3934/jimo.2013.9.769
[20]

Weigao Ge, Li Zhang. Multiple periodic solutions of delay differential systems with $2k-1$ lags via variational approach. Discrete & Continuous Dynamical Systems - A, 2016, 36 (9) : 4925-4943. doi: 10.3934/dcds.2016013

2018 Impact Factor: 1.025

Tools

Metrics

  • PDF downloads (13)
  • HTML views (0)
  • Cited by (0)

Other articles
by authors

[Back to Top]

Copyright © 2019 American Institute of Mathematical Sciences