Utility maximization in an illiquid market in continuous time
نویسندگان
چکیده
A utility maximization problem in an illiquid market is studied. The financial market is assumed to have temporary price impact with finite resilience. After the formulation of this problem as a Markovian stochastic optimal control problem a dynamic programming approach is used for its analysis. In particular, the dynamic programming principle is proved and the value function is shown to be the unique discontinuous viscosity solution. This characterization is utilized to obtain numerical results for the optimal strategy and the loss due to illiquidity.
منابع مشابه
Utility Maximization in an Illiquid Market
We consider a stochastic optimization problem of maximizing the expected utility from terminal wealth in an illiquid market. A discrete time model is constructed with few additional state variables. The dynamic programming approach is then developed and used for numerical studies. No-arbitrage conditions were also discussed.
متن کاملStability of the Utilitymaximization Problemwith Random Endowment in Incomplete Markets
We perform a stability analysis for the utility maximization problem in a general semimartingale model where both liquid and illiquid assets (random endowments) are present. Small misspecifications of preferences (asmodeled via expected utility), as well as views of the world or the market model (as modeled via subjective probabilities) are considered. Simple sufficient conditions are given for...
متن کاملHedging and Portfolio Optimization in Financial Markets with a Large Trader
We introduce a general continuous–time model for an illiquid financial market where the trades of a single large investor can move market prices. The model is specified in terms of parameter dependent semimartingales, and its mathematical analysis relies on the non–linear integration theory of such semimartingale families. The Itô–Wentzell formula is used to prove absence of arbitrage for the l...
متن کاملN ov 2 01 2 Impact of time illiquidity in a mixed market without full observation
We study a problem of optimal investment/consumption over an infinite horizon in a market consisting of two possibly correlated assets: one liquid and one illiquid. The liquid asset is observed and can be traded continuously, while the illiquid one can be traded only at discrete random times corresponding to the jumps of a Poisson process with intensity λ, is observed at the trading dates, and ...
متن کاملNber Working Paper Series Illiquid Assets and Optimal Portfolio Choice
The presence of illiquid assets, such as human wealth, housing and a proprietorship substantially complicates the problem of portfolio choice. This paper is concerned with the problem of optimal asset allocation and consumption in a continuous time model when one asset cannot be traded. This illiquid asset, which depends on an uninsurable source of risk, provides a liquid dividend. In the case ...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
- Math. Meth. of OR
دوره 84 شماره
صفحات -
تاریخ انتشار 2016