Optimal sale strategies in illiquid markets

• The value of a position in a risky asset when optimally sold in an illiquid market is considered. The optimization problem is described as a stochastic impulse control problem, and it is shown that it is related to solving a system of quasi-variational inequalities. Existence of a solution to these inequalities are proved. A numerical implementation of the valuation algorithm is discussed and two numerical examples are presented. Further, two examples where the stochastic impulse control problem can be reduced to deterministic optimization problems are also given.

Subject headings

NATURVETENSKAP  -- Matematik (hsv//swe)

NATURAL SCIENCES  -- Mathematics (hsv//eng)

Keyword

liquidity discount

stochastic impulse control

HJB quasi-variational inequalities

large sales

Publication and Content Type

art (subject category)

ref (subject category)