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arXiv · 1609.00599

Optimal Execution in a Multiplayer Model of Transient Price Impact

Elias Strehle
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Abstract

Trading algorithms that execute large orders are susceptible to exploitation by order anticipation strategies. This paper studies the influence of order anticipation strategies in a multi-investor model of optimal execution under transient price impact. Existence and uniqueness of a Nash equilibrium is established under the assumption that trading incurs quadratic transaction costs. A closed-form representation of the Nash equilibrium is derived for exponential decay kernels. With this representation, it is shown that while order anticipation strategies raise the execution costs of a large order significantly, they typically do not cause price overshooting in the sense of Brunnermeier and Pedersen.

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Elias Strehle. 2019-03-10. Optimal Execution in a Multiplayer Model of Transient Price Impact. https://doi.org/10.1142/s2382626618500077

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