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

Peter Bank; Yan Dolinsky; Miklós Rásonyi

doi:10.1007/s00245-022-09885-w

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

Peter Bank, Yan Dolinsky, Miklós Rásonyi

Department of Statistics

The Hebrew University of Jerusalem

Research output: Contribution to journal › Article › peer-review

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 language	English
Article number	25
Journal	Applied Mathematics and Optimization
Volume	86
Issue number	2
DOIs	https://doi.org/10.1007/s00245-022-09885-w
State	Published - Oct 2022

Keywords

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

All Science Journal Classification (ASJC) codes

Control and Optimization
Applied Mathematics

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10.1007/s00245-022-09885-w

Cite this

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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.",

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N2 - 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.

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KW - Gaussian Volterra integral equation

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KW - Price impact

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

Abstract

Keywords

All Science Journal Classification (ASJC) codes

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