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Optimal liquidation of derivative portfolios
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Henderson, Vicky and Hobson, David (David G.). (2010) Optimal liquidation of derivative portfolios. Mathematical Finance, Volume 21 (Number 3). pp. 365382. ISSN 09601627
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Official URL: http://dx.doi.org/10.1111/j.14679965.2010.00455.x
Abstract
We consider the problem facing a risk averse agent who seeks to liquidate or exercise a portfolio of (infinitely divisible) perpetual American style options on a single underlying asset. The optimal liquidation strategy is of threshold form and can be characterized explicitly as the solution of a calculus of variations problem. Apart from a possible initial exercise of a tranche of options, the optimal behavior involves liquidating the portfolio in infinitesimal amounts, but at times which are singular with respect to calendar time. We consider a number of illustrative examples involving CRRA and CARA utility, stocks, and portfolios of options with different strikes, and a model where the act of exercising has an impact on the underlying asset price.
Item Type:  Journal Article  

Subjects:  H Social Sciences > HG Finance  
Divisions:  Faculty of Science > Statistics  
Library of Congress Subject Headings (LCSH):  Portfolio management, Liquidation, Derivative securities  
Journal or Publication Title:  Mathematical Finance  
Publisher:  WileyBlackwell Publishing, Inc.  
ISSN:  09601627  
Official Date:  2010  
Dates: 


Volume:  Volume 21  
Number:  Number 3  
Page Range:  pp. 365382  
Identification Number:  10.1111/j.14679965.2010.00455.x  
Status:  Peer Reviewed  
Publication Status:  Published  
References:  ALMGREN, R. (2003): Optimal Execution with Nonlinear Impact Functions and Tradingenhanced 

URI:  http://wrap.warwick.ac.uk/id/eprint/41308 
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