2014/09/25 by Jan Kallsen, Kallsen, Jan, Johannes Muhle-Karbe +1
Economics, Econometrics and Finance · Mathematics · #FOS: Economics and business #FOS: Mathematics #Optimization and Control (math.OC) #Portfolio Management (q-fin.PM) #Probability (math.PR) #Trading and Market Microstructure (q-fin.TR) #math.OC #math.PR #q-fin.PM #q-fin.TR
paper · pdf · doi:10.48550/arxiv.1409.7269
12 pages
arxiv created 2014/09/25 · arxiv updated 2014/09/26
We show that wealth processes in the block-shaped order book model of Obizhaeva/Wang converge to their counterparts in the reduced-form model proposed by Almgren/Chriss, as the resilience of the order book tends to infinity. As an application of this limit theorem, we explain how to reduce portfolio choice in highly-resilient Obizhaeva/Wang models to the corresponding problem in an Almgren/Chriss setup with small quadratic trading costs.