What if We Knew What the Future Brings? Optimal Investment for a Frontrunner with Price Impact

Peter Bank*, Yan Dolinsky, Miklós Rásonyi

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

In this paper we study optimal investment when the investor can peek some time units into the future, but cannot fully take advantage of this knowledge because of quadratic transaction costs. In the Bachelier setting with exponential utility, we give an explicit solution to this control problem with intrinsically infinite-dimensional memory. This is made possible by solving the dual problem where we make use of the theory of Gaussian Volterra integral equations.

Original languageAmerican English
Article number25
JournalApplied Mathematics and Optimization
Volume86
Issue number2
DOIs
StatePublished - Oct 2022

Bibliographical note

Publisher Copyright:
© 2022, The Author(s).

Keywords

  • Exponential utility
  • Gaussian Volterra integral equation
  • Inside information
  • Optimal investment
  • Price impact

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