Optimal liquidation with high risk aversion and small linear price impact

Leonid Dolinskyi, Yan Dolinsky*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We consider the Bachelier model with linear price impact. Exponential utility indifference prices are studied for vanilla European options in the case where the investor is required to liquidate her position. Our main result is establishing a non-trivial scaling limit for a vanishing price impact which is inversely proportional to the risk aversion. We compute the limit of the corresponding utility indifference prices and find explicitly a family of portfolios which are asymptotically optimal.

Original languageAmerican English
JournalDecisions in Economics and Finance
DOIs
StateAccepted/In press - 2024

Bibliographical note

Publisher Copyright:
© The Author(s) 2024.

Keywords

  • Exponential utility
  • Linear price impact
  • Optimal liquidation

Fingerprint

Dive into the research topics of 'Optimal liquidation with high risk aversion and small linear price impact'. Together they form a unique fingerprint.

Cite this