Generalized Optimal Liquidation Problems Across Multiple Trading Venues

TL;DR

This paper extends the Almgren-Chriss model to multiple trading venues and incorporates additional information, offering new insights into optimal liquidation strategies in complex, multi-venue markets with variable volatility.

Contribution

It introduces a generalized framework for optimal liquidation across multiple venues, accounting for additional information and stochastic volatility, enhancing the realism of existing models.

Findings

Liquidation strategies change with multiple venues and extra information.

Market liquidity significantly influences optimal liquidation.

The multi-scale approach captures volatility effects on trading strategies.

Abstract

In this paper, we generalize the Almgren-Chriss's market impact model to a more realistic and flexible framework and employ it to derive and analyze some aspects of optimal liquidation problem in a security market. We illustrate how a trader's liquidation strategy alters when multiple venues and extra information are brought into the security market and detected by the trader. This study gives some new insights into the relationship between liquidation strategy and market liquidity, and provides a multi-scale approach to the optimal liquidation problem with randomly varying volatility.