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OPTIMAL LIQUIDATION OF DERIVATIVE PORTFOLIOS

Abstract:

We consider the problem facing a risk averse agent who seeks to liquidate or exercise a portfolio of (infinitely divisible) perpetual American style options on a single underlying asset. The optimal liquidation strategy is of threshold form and can be characterized explicitly as the solution of a calculus of variations problem. Apart from a possible initial exercise of a tranche of options, the optimal behavior involves liquidating the portfolio in infinitesimal amounts, but at times which ar...

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Publication status:
Published

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Institution:
University of Oxford
Department:
Oxford, MPLS, Oxford-Man
Journal:
MATHEMATICAL FINANCE
Volume:
21
Issue:
3
Pages:
365-382
Publication date:
2011-07-05
DOI:
EISSN:
1467-9965
ISSN:
0960-1627
URN:
uuid:7d58df2a-f659-4fb2-a47c-3ab17f3cb878
Source identifiers:
303854
Local pid:
pubs:303854

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