Document Type
Article
Publication Date
9-18-2006
Abstract
This paper studies optimal liquidation when the selling price depends on the rate of liquidation, transaction time, volume, and the asset's intrinsic value. A generic closed-form solution for maximizing the discounted liquidation proceeds is derived. To obtain financial insights, three parametric specifications that proxy for increasingly realistic market conditions are examined. In our framework, maximizing liquidation proceeds and minimizing liquidity costs are equivalent. The optimal strategies imply more rapid liquidations in less liquid markets. We also show that volatility is stochastic when market liquidity is unpredictable.
Recommended Citation
Ting, C., Warachka, M., & Zhao, Y. (2007). Optimal liquidation strategies and their iImplications. Journal of Economic Dynamics and Control, 31(4), 1431-1450. https://doi.org/10.1016/j.jedc.2006.07.003
Peer Reviewed
1
Copyright
Elsevier
Creative Commons License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.
Comments
NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Economic Dynamics and Control. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Economic Dynamics and Control, volume 31, issue 4, in 2007. https://doi.org/10.1016/j.jedc.2006.07.003
The Creative Commons license below applies only to this version of the article.