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BibTex format

@article{Neumann:2022:10.1137/20M1375486,
author = {Neumann, E and Moritz, V},
doi = {10.1137/20M1375486},
journal = {SIAM Journal on Financial Mathematics},
pages = {551--575},
title = {Optimal signal-adaptive trading with temporary and transient price impact},
url = {http://dx.doi.org/10.1137/20M1375486},
volume = {13},
year = {2022}
}

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TY  - JOUR
AB  - We study optimal liquidation in the presence of linear temporary and transient price impact along with taking into account a general price predictingfinite-variation signal. We formulate this problem as minimization of a cost-riskfunctional over a class of absolutely continuous and signal-adaptive strategies.The stochastic control problem is solved by following a probabilistic and convexanalytic approach. We show that the optimal trading strategy is given by asystem of four coupled forward-backward SDEs, which can be solved explicitly.Our results reveal how the induced transient price distortion provides togetherwith the predictive signal an additional predictor about future price changes.As a consequence, the optimal signal-adaptive trading rate trades off exploitingthe predictive signal against incurring the transient displacement of the execution price from its unaffected level. This answers an open question from Lehalleand Neuman [29] as we show how to derive the unique optimal signal-adaptiveliquidation strategy when price impact is not only temporary but also transient.
AU  - Neumann,E
AU  - Moritz,V
DO  - 10.1137/20M1375486
EP  - 575
PY  - 2022///
SN  - 1945-497X
SP  - 551
TI  - Optimal signal-adaptive trading with temporary and transient price impact
T2  - SIAM Journal on Financial Mathematics
UR  - http://dx.doi.org/10.1137/20M1375486
UR  - https://epubs.siam.org/doi/abs/10.1137/20M1375486
UR  - http://hdl.handle.net/10044/1/93427
VL  - 13
ER  -

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Dr Eyal Neuman

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