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Preprints, Working Papers, ... Year : 2014

Dynamic optimal execution in a mixed-market-impact Hawkes price model

Abstract

We study a linear price impact model including other liquidity takers, whose flow of orders either follows a Poisson or a Hawkes process. The optimal execution problem is solved explicitly in this context, and the closed-formula optimal strategy describes in particular how one should react to the orders of other traders. This result enables us to discuss the viability of the market. It is shown that Poissonian arrivals of orders lead to quite robust Price Manipulation Strategies in the sense of Huberman and Stanzl. Instead, a particular set of conditions on the Hawkes model balances the self-excitation of the order flow with the resilience of the price, excludes Price Manipulation Strategies and gives some market stability.
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Dates and versions

hal-00971369 , version 1 (02-04-2014)
hal-00971369 , version 2 (09-06-2015)

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Aurélien Alfonsi, Pierre Blanc. Dynamic optimal execution in a mixed-market-impact Hawkes price model. 2014. ⟨hal-00971369v1⟩
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