July  2005, 1(3): 289-304. doi: 10.3934/jimo.2005.1.289

Optimal execution strategy with an endogenously determined sales period


School of Economics and Management, Xidian University, Xi'an 710071, China


College of International Business and Management, Shanghai University, Shanghai 201800


School of Science, China iliang Uiversity, Hangzhou 310028, China


Department of Intelligence and Informatics, Konan University, 8-9-1 Okamoto, Kobe 658-8501

Received  August 2004 Revised  February 2005 Published  July 2005

We discuss the problem of the optimal liquidation of a financial product in which both the market risk of the asset and the market impact of the investor's own dealings are considered, and where the asset is liquidated over several sales periods with a constant sales interval. The investor chooses the sales volume in each period as well as the volume over the entire sales period in order to minimize the expected execution costs under a certain level of risk. We obtain an explicit solution for the optimal execution strategies and present four numerical examples to show that the proportion between market risk and liquidity risk exerts a major influence over the optimal execution strategy. We also show that to obtain the optimal result the investor should liquidate his holdings over a short sales period.
Citation: Guibin Lu, Qiying Hu, Youying Zhou, Wuyi Yue. Optimal execution strategy with an endogenously determined sales period. Journal of Industrial & Management Optimization, 2005, 1 (3) : 289-304. doi: 10.3934/jimo.2005.1.289

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