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Horst, Ulrich
Xia, Xiaonyu
Zhou, Chao
Year of Publication: 
Series/Report no.: 
Discussion Paper No. 274
We study an optimal liquidation problem under the ambiguity with respect to price impact parameters. Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE with superlinear gradient, monotone generator and singular terminal value. We also establish an asymptotic analysis of the robust model for small amounts of uncertainty and analyze the effect of robustness on optimal trading strategies and liquidation costs. In particular, in our model ambiguity aversion is observationally equivalent to increased risk aversion. This suggests that ambiguity aversion increases liquidation rates.
stochastic control
portfolio liquidation
singular terminal value
superlinear growth gradient
Document Type: 
Working Paper

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