Principal Trading Arrangements: Optimality under Temporary and Permanent Price Impact
| Autor: | Joshua Mollner, Markus Baldauf, Christoph Frei |
|---|---|
| Rok vydání: | 2021 |
| Předmět: |
History
Polymers and Plastics media_common.quotation_subject Principal (computer security) Principal–agent problem Payment Discount points Industrial and Manufacturing Engineering Microeconomics Action (philosophy) Order (exchange) Interim Position (finance) Business Business and International Management media_common |
| Zdroj: | SSRN Electronic Journal. |
| ISSN: | 1556-5068 |
| DOI: | 10.2139/ssrn.3778956 |
| Popis: | We study the optimal execution problem in a principal-agent setting. A client contracts to purchase a large position from a dealer at a future point in time. In the interim, the dealer acquires the position from the market, choosing how to split the parent order into smaller child orders. Price impact may have a temporary and a permanent component. There is hidden action in that the client cannot directly dictate the dealer’s trades. Rather, she chooses a contract with the goal of minimizing her expected payment, taking as given how the dealer’s trading will depend on the contract. We characterize explicitly the optimal contract: it is symmetric, and numerical experimentation suggests it is U-shaped. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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