Portfolio liquidation under factor uncertainty

Understand

We study an optimal liquidation problem under the ambiguity with respect to price impact parameters.

• Our main results show that the value function and the optimal trading strategy can be characterized by the solution to a semi-linear PDE with superlinear gradient, monotone generator and singular terminal value.
• We also establish an asymptotic analysis of the robust model for small amount of uncertainty and analyse the effect of robustness on optimal trading strategies and liquidation costs.
• In particular, in our model ambiguity aversion is observationally equivalent to increased risk aversion.