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arXiv · 1701.08972

An Optimal Execution Problem in the Volume-Dependent Almgren-Chriss Model

Takashi Kato
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Abstract

In this study, we introduce an explicit trading-volume process into the Almgren-Chriss model, which is a standard model for optimal execution. We propose a penalization method for deriving a verification theorem for an adaptive optimization problem. We also discuss the optimality of the volume-weighted average-price strategy of a risk-neutral trader. Moreover, we derive a second-order asymptotic expansion of the optimal strategy and verify its accuracy numerically.

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Takashi Kato. 2017-01-31. An Optimal Execution Problem in the Volume-Dependent Almgren-Chriss Model. https://arxiv.org/abs/1701.08972

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