Optimal Trade Execution and Price Manipulation in Order Books with Time-Varying Liquidity

Optimal execution and price manipulations in time-varying limit order books

Abstract: This paper focuses on an extension of the Limit Order Book (LOB) model with general shape introduced by Alfonsi, Fruth and Schied [2]. Here, the additional feature allows a time-varying LOB depth. We solve the optimal execution problem in this framework for both discrete and continuous time strategies. This gives in particular sufficient conditions to exclude Price Manipulations in th...

Optimal Trade Execution and Absence of Price Manipulations in Limit Order Book Models

We analyze the existence of price manipulation and optimal trade execution strategies in a model for an electronic limit order book with nonlinear price impact and exponential resilience. Our main results show that, under general conditions on the shape function of the limit order book, placing deterministic trade sizes at trading dates that are homogeneously spaced is optimal within a large cl...

Optimal Execution under Liquidity Constraints

This paper introduces a method of finding the optimal execution schedule to minimize risks under liquidity constraints. The liquidity of stocks is a significant factor for trading because a lack of liquidity leads to an inability to perform according to a preset execution schedule. The idea of liquidity constraints comes from the fact that the market impact of a small volume of trading is negli...

Optimal trade execution of equities in a limit order market

Optimal execution strategies in limit order books with general shape functions

We consider optimal execution strategies for block market orders placed in a limit order book (LOB). We build on the resilience model proposed by Obizhaeva and Wang (2005) but allow for a general shape of the LOB defined via a given density function. Thus, we can allow for empirically observed LOB shapes and obtain a nonlinear price impact of market orders. We distinguish two possibilities for ...