Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/222013
Authors: 
Csóka, Péter
Hevér, Judit
Year of Publication: 
2017
Series/Report no.: 
IEHAS Discussion Papers MT-DP - 2017/36
Abstract: 
When institutional investors rearrange their portfolios, they should consider both the temporary and the permanent price impacts. After a temporary price impact the order book fully recovers, whereas a permanent price impact changes the equilibrium price, having effects on the resulting portfolio. In this paper, for a given period, we introduce an optimization problem for valuing illiquid portfolios with permanent price impacts. We show how to find the optimal trade to satisfy certain portfolio constraints. As a policy implication, we note that introducing permanent price impacts in internal or external regulation can substantially change liquidity risk or capital requirements.
Subjects: 
Portfolio Valuation
Liquidity Risk
Permanent Price Impact
SEC Rule 22e-4
JEL: 
G11
ISBN: 
978-615-5754-34-0
Document Type: 
Working Paper

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