Optimal Signal-Adaptive Trading with Temporary and Transient Price Impact

We study optimal liquidation in the presence of linear temporary and transient price impact along with taking into account a general predicting finite-variation signal. formulate this problem as minimization cost-risk functional over class absolutely continuous signal-adaptive strategies. The stochastic control is solved by following probabilistic convex analytic approach. show that trading strategy given system four coupled forward-backward SDEs, which can be explicitly. Our results reveal how induced distortion provides together predictive signal an additional predictor about future changes. As consequence, rate trades off exploiting against incurring displacement execution from its unaffected level. This answers open question [C. A. Lehalle E. Neuman, Finance Stoch., 23 (2019), pp. 275--311] we to derive unique when not only but also transient.