Agostino Capponi (Columbia University)
Thursday, February 15, 2018 - 17:15
Humboldt-Universität zu Berlin, Institut für Mathematik
Rudower Chaussee 25, 12489 Berlin, Raum 1.115, 1. Etage
Forschungsseminar "Stochastische Analysis und Stochastik der Finanzmärkte"
Prof. P. Bank, Prof. D. Becherer, Prof. P. Friz, Prof. U. Horst, Prof. D. Kreher, Prof. N. Perkowski
We analyze a dynamic liquidation game where both liquidity demand and supply are endogenous. A large uninformed investor strategically liquidates a position, fully cognizant of the optimal response of competitive market makers. The Stackelberg game solution shows that, if the investor reveals the duration of the trade to the intermediation sector, then he chooses to sell at higher intensity when he has less time to trade. This enables market makers to predict when execution ends, which helps them provide liquidity and thus reduces the liquidity premium they charge. The model explains several empirical facts: order duration and participation rate correlate negatively, and price pressure subsides before execution ends.(Joint work with Albert Menkveld and Hongzhong Zhang)
submitted by Sabine Bergmann (bergmann@mathematik.hu-berlin.de, 030/2093 5811)