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Probability and Computational Finance Seminar
Paolo Guasoni
Boston University/Dublin City College
Title: Nonlinear price impact and portfolio choice

Abstract: In a market with price-impact proportional to a power of the order flow, we find optimal trading policies and their implied performance for long-term investors, who have constant relative risk aversion and trade a safe asset and a risky asset following geometric Brownian motion. These quantities admit asymptotic explicit formulas up to a structural constant that depends only on the curvature of the price-impact function. Trading rates are finite as with linear impact, but are lower near the target portfolio, and higher away from the target. The model nests the square-root impact law and, as extreme cases, linear impact and proportional transaction costs.

Date: Monday, February 6, 2017
Time: 4:30 pm
Location: Wean Hall 8220
Submitted by:  Steve Shreve