Optimal Execution of Derivatives: A Taylor Expansion Approach
In this chapter, we derive the Markowitz-optimal trading trajectory for a trader who wishes to sell a large position of Kunits on some contingent claim. To do so, we first use a Taylor expansion of the derivative with respect to the price of the underlying asset at time zero. We then use up to the second-order approximation to solve the mean-variance optimization problem.
KeywordsContingent Claim Market Impact Optimal Trading Large Position Claim Problem
The authors were partially supported by Algorithmic Trading Management LLC.
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