Imperial College London
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DrMartinHaugh

Business School

Associate Professor of Analytics and Operations Research
 
 
 
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Contact

 

m.haugh Website

 
 
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Location

 

386BBusiness School BuildingSouth Kensington Campus

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Summary

 

Publications

Citation

BibTex format

@article{Haugh:2014:10.1137/120896761,
author = {Haugh, M and Wang, C},
doi = {10.1137/120896761},
journal = {SIAM Journal on Financial Mathematics},
pages = {316--359},
title = {Dynamic portfolio execution and information relaxations},
url = {http://dx.doi.org/10.1137/120896761},
volume = {5},
year = {2014}
}
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RIS format (EndNote, RefMan)

TY  - JOUR
AB  - We consider a portfolio execution problem where a possibly risk-averse agent needs to trade a fixed number of shares in multiple stocks over a short time horizon. Our price dynamics can capture linear but stochastic temporary and permanent price impacts as well as stochastic volatility. In general it is not possible to solve even numerically for the optimal policy in this model, however, and so we must instead search for good suboptimal policies. Our principal policy is a variant of an open-loop feedback control (OLFC) policy, and we show how the corresponding OLFC value function may be used to construct good primal and dual bounds on the optimal value function. The dual bound is constructed using the recently developed duality methods based on information relaxations. One of the contributions of this paper is the identification of sufficient conditions to guarantee convexity, and hence tractability, of the associated dual problem instances. That said, we do not claim that the only plausible models are those where all dual problem instances are convex. We also show that it is straightforward to include a nonlinear temporary price impact as well as return predictability in our model. We demonstrate numerically that good dual bounds can be computed quickly even when nested Monte Carlo simulations are required to estimate the so-called dual penalties. These results suggest that the dual methodology can be applied in many models where closed-form expressions for the dual penalties cannot be computed.
AU  - Haugh,M
AU  - Wang,C
DO  - 10.1137/120896761
EP  - 359
PY  - 2014///
SN  - 1945-497X
SP  - 316
TI  - Dynamic portfolio execution and information relaxations
T2  - SIAM Journal on Financial Mathematics
UR  - http://dx.doi.org/10.1137/120896761
UR  - https://epubs.siam.org/doi/10.1137/120896761
VL  - 5
ER  -
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