Implementing Portfolio Liquidation Models

UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Department
Research Seminars in Finance

Topic: Implementing Portfolio Liquidation Models 

Speaker: Ulrich Horst, Humboldt University Berlin

Abstract:      

We derive a closed-form solution to implement an order splitting strategy that accounts for three types on market impact: permanent, temporary and instantaneous, leading to a unified view of market impact and optimal liquidation. We provide a new statistical procedure to estimate the three types of market impact based on limit order book market dynamics. Specifically, we show that the instantaneous market impact can be derived from the current state of the orderbook, while the permanent and temporary are triggered by the shift in the mid-price process due to anticipation of future order flows. We use those market impact estimations to run liquidation strategies that only rely on a single form of market impact against the optimal one with all the three into consideration. In terms of application, we investigate the performance of the optimal trading strategy that accounts for all types of market impact on 100 NASDAQ stocks that represent a range of market impact profiles.

Please note: A copy of the paper has not been made available by the speaker

Date: Wednesday, 27th February 2019     

Time: 12.00 – 1.00 p.m.

Venue: University of Technology Sydney
             Building 8, Room 8.002, Dr Chau Chak Wing Building
             Dr Chau Chak Wing Building
             14 - 28 Ultimo Road, Ultimo

Co-ordinator: Kris Glover  (Ph: +61 2 9514 7778)

Enquiries: Duncan Ford (Ph: +61 2 9514 7714)