A MODEL FOR A LARGE INVESTOR TRADING AT MARKET INDIFFERENCE PRICES. II: CONTINUOUS-TIME CASE

• 成果类型: Article
• 署名作者: Bank, Peter; Kramkov, Dmitry
• 署名单位: Technical University of Berlin; Carnegie Mellon University
• 刊物名称: ANNALS OF APPLIED PROBABILITY
• ISSN/ISSBN: 1050-5164
• DOI: 10.1214/14-AAP1059
• 发表日期: 2015
• 页码: 2708-2742
• 关键词: fundamental theorem; liquidity; options; RISK

摘要

We develop from basic economic principles a continuous-time model for a large investor who trades with a finite number of market makers at their utility indifference prices. In this model, the market makers compete with their quotes for the investor's orders and trade among themselves to attain Pareto optimal allocations. We first consider the case of simple strategies and then, in analogy to the construction of stochastic integrals, investigate the transition to general continuous dynamics. As a result, we show that the model's evolution can be described by a nonlinear stochastic differential equation for the market makers' expected utilities.