Optimal investment on finite horizon with random discrete order flow in illiquid markets

Details Optimal investment on finite horizon with random discrete order flow in illiquid markets Optimal investment on finite horizon with random discrete order flow in illiquid markets

2009-07-13

arxiv.org/abs/0907.2203v1

Economy

Quantitative Finance

Portfolio Management

Scientific paper

We study the problem of optimal portfolio selection in an illiquid market with discrete order flow. In this market, bids and offers are not available at any time but trading occurs more frequently near a terminal horizon. The investor can observe and trade the risky asset only at exogenous random times corresponding to the order flow given by an inhomogenous Poisson process. By using a direct dynamic programming approach, we first derive and solve the fixed point dynamic programming equation satisfied by the value function, and then perform a verification argument which provides the existence and characterization of optimal trading strategies. We prove the convergence of the optimal performance, when the deterministic intensity of the order flow approaches infinity at any time, to the optimal expected utility for an investor trading continuously in a perfectly liquid market model with no-short sale constraints.

Affiliated with

Also associated with

No associations

Rating

Optimal investment on finite horizon with random discrete order flow in illiquid markets does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Optimal investment on finite horizon with random discrete order flow in illiquid markets, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Optimal investment on finite horizon with random discrete order flow in illiquid markets will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-101213