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A model for a large investor trading at market indifference prices. I: Single-period case

Abstract:

We develop a single-period model for a large economic agent who trades with market makers at their utility indifference prices. We compute the sensitivities of these market indifference prices with respect to the size of the investor’s order. It turns out that the price impact of an order is determined both by the market makers’ joint risk tolerance and by the variation of individual risk tolerances. On a technical level, a key role in our analysis is played by a pair of conjugate saddle func...

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Publication status:
Published
Peer review status:
Peer reviewed
Version:
Accepted Manuscript

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Publisher copy:
10.1007/s00780-015-0258-y

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Department:
Oxford, MPLS, Mathematical Institute
Role:
Author
Publisher:
Springer Verlag Publisher's website
Journal:
Finance and Stochastics Journal website
Volume:
19
Issue:
2
Pages:
449-472
Publication date:
2015-04-15
DOI:
EISSN:
1432-1122
ISSN:
0949-2984
Pubs id:
pubs:192877
URN:
uri:d72e49b5-f3e3-4bd6-91a6-fb2fd2dc74b6
UUID:
uuid:d72e49b5-f3e3-4bd6-91a6-fb2fd2dc74b6
Local pid:
pubs:192877
Keywords:

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