2010/04/23 by Fabio Caccioli, Caccioli, Fabio, Susanne Still +5
Decision Sciences · Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Portfolio Management (q-fin.PM) #Risk Management (q-fin.RM) #Risk and Portfolio Optimization #Stochastic processes and financial applications #q-fin.PM #q-fin.RM
paper · pdf · doi:10.48550/arxiv.1004.4169
26 pages, 3 figures
openalex publication_date 2010/04/23 · arxiv created 2011/02/21 · arxiv updated 2011/02/22 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We consider the problem of portfolio optimization in the presence of market impact, and derive optimal liquidation strategies. We discuss in detail the problem of finding the optimal portfolio under Expected Shortfall (ES) in the case of linear market impact. We show that, once market impact is taken into account, a regularized version of the usual optimization problem naturally emerges. We characterize the typical behavior of the optimal liquidation strategies, in the limit of large portfolio sizes, and show how the market impact removes the instability of ES in this context.