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Article: Viscosity solution for optimal liquidation problems with randomly-terminated horizon

TitleViscosity solution for optimal liquidation problems with randomly-terminated horizon
Authors
KeywordsHamilton–Jacobi–Bellman equation
Optimal liquidation strategies
Viscosity solution
Issue Date1-Mar-2024
PublisherElsevier
Citation
Finance Research Letters, 2024, v. 61 How to Cite?
AbstractIn this paper, we study an optimal liquidation problem of a stressed asset, for which its value is modeled by a geometric Brownian motion. The default time of the stressed asset, therefore, becomes stochastic and predictable. Hence we deal with the optimal liquidation problem in a randomly-terminated horizon. We consider the liquidation of a large single-asset portfolio with the aim of minimizing a combination of volatility risk and transaction costs arising from permanent and temporary market impacts. We prove that the value function is the unique viscosity solution to the Hamilton–Jacobi–Bellman (HJB) equation of the considered optimal liquidation problem.
Persistent Identifierhttp://hdl.handle.net/10722/348368
ISSN
2023 Impact Factor: 7.4
2023 SCImago Journal Rankings: 1.903

 

DC FieldValueLanguage
dc.contributor.authorYang, Qing Qing-
dc.contributor.authorChing, Wai Ki-
dc.contributor.authorGu, Jia wen-
dc.contributor.authorWong, Tak Kwong-
dc.contributor.authorZhu, Dong Mei-
dc.date.accessioned2024-10-09T00:31:03Z-
dc.date.available2024-10-09T00:31:03Z-
dc.date.issued2024-03-01-
dc.identifier.citationFinance Research Letters, 2024, v. 61-
dc.identifier.issn1544-6123-
dc.identifier.urihttp://hdl.handle.net/10722/348368-
dc.description.abstractIn this paper, we study an optimal liquidation problem of a stressed asset, for which its value is modeled by a geometric Brownian motion. The default time of the stressed asset, therefore, becomes stochastic and predictable. Hence we deal with the optimal liquidation problem in a randomly-terminated horizon. We consider the liquidation of a large single-asset portfolio with the aim of minimizing a combination of volatility risk and transaction costs arising from permanent and temporary market impacts. We prove that the value function is the unique viscosity solution to the Hamilton–Jacobi–Bellman (HJB) equation of the considered optimal liquidation problem.-
dc.languageeng-
dc.publisherElsevier-
dc.relation.ispartofFinance Research Letters-
dc.subjectHamilton–Jacobi–Bellman equation-
dc.subjectOptimal liquidation strategies-
dc.subjectViscosity solution-
dc.titleViscosity solution for optimal liquidation problems with randomly-terminated horizon-
dc.typeArticle-
dc.identifier.doi10.1016/j.frl.2024.105043-
dc.identifier.scopuseid_2-s2.0-85186369488-
dc.identifier.volume61-
dc.identifier.eissn1544-6131-
dc.identifier.issnl1544-6131-

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