Stability for gains from large investors' strategies in M1/J1 topologies

Abstract

We prove continuity of a controlled SDE solution in Skorokhod's $M_1$ and $J_1$ topologies and also uniformly, in probability, as a non-linear functional of the control strategy. The functional comes from a finance problem to model price impact of a large investor in an illiquid market. We show that $M_1$-continuity is the key to ensure that proceeds and wealth processes from (self-financing) càdlàg trading strategies are determined as the continuous extensions for those from continuous strategies. We demonstrate by examples how continuity properties are useful to solve different stochastic control problems on optimal liquidation and to identify asymptotically realizable proceeds.

arXiv commentSome important corrections

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Cited by in corpus (1)

• Optimal Asset Liquidation with Multiplicative Transient Price Impact