Mathematical Finance Seminar
TUB; MA042
Likai Jiao (HU Berlin)

An infinite-dimensional price impact model

In this talk, we introduce an infinite-dimensional price impact process as a kind of Markovian lift of non-Markovian 1-dimensional price impact processes with completely monotone decay kernels. In an additive price impact scenario, the related optimal control problem is extended and transformed into a linear-quadratic framework. The optimal strategy is characterized by an operator-valued Riccati equation and a linear backward stochastic evolution equation (BSEE). By incorporating stochastic in-flow, the BSEE is simplified into an infinite-dimensional ODE. With appropriate penalizations, the well-posedness of the Riccati equation is well-known.

This is a joint work with Prof. Dirk Becherer and Prof. Christoph Reisinger.