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Section: New Results

Liquidity risk

Aurélien Alfonsi and his PhD student Pierre Blanc are working on the optimal execution problem when there are many large traders who modify the price. They consider an Obizhaeva and Wang model for the price impact, and they assume that the flow of market orders generated by the other traders is given by an exogenous process. They have shown that Price Manipulation Strategies (PMS) exist when the flow of order is a compound Poisson process. On the other hand, modeling this flow by a mutually exciting Hawkes process allows them with a particular parametrization to exclude these PMS. Besides, they are able to calculate explicitly the optimal execution strategy within the model [29] . They are now investigating how this model can fit market data.