Wednesday, September 25, 2019 - 17:30 in X-E0-002
Skorokhod M1-stability and free boundaries in non-convex stochastic singular control
A talk in the Keine Reihe series by
Dirk Becherer from HU Berlin
| Abstract: |
We discuss how continuity in the M1 path-topology by Skorokhod and calculus of variation arguments permit for a surprisingly constructive solutions to singular optimal control problems, characterizing optimal trading strategies in financial asset markets with limited liquidity.
Although there is no apparent convexity structure in the problem, a key step to prove global optimality turns out to show at first local optimality of the candidate free boundary surface, which separates the respective (no-)action regions in the state space and characterizes the optimal dynamic control strategy.
As an application, we obtain optimal trading strategies for large investors under transient price impact, generalizing e.g.~the seminal result by Obizhaeva and Wang to
multiplicative impact, non-negative asset prices and non-zero price trends.
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