Optimal portfolio liquidation with distress risk / Brown, David B. in Management science, Vol. 56 N° 11 (Novembre 2010)  

Public ISBD [article]  inManagement science > Vol. 56 N° 11 (Novembre 2010) . - pp. 1997-2014 Titre : Optimal portfolio liquidation with distress risk Type de document : texte imprimé Auteurs : Brown, David B., Auteur ; Bruce Ian Carlin, Auteur ; Miguel Sousa Lobo, Auteur Année de publication : 2011 Article en page(s) : pp. 1997-2014 Note générale : Management Langues : Anglais (eng) Mots-clés : Portfolio management Optimal liquidation Price impact Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We analyze the problem of an investor who needs to unwind a portfolio in the face of recurring and uncertain liquidity needs, with a model that accounts for both permanent and temporary price impact of trading. We first show that a risk-neutral investor who myopically deleverages his position to meet an immediate need for cash always prefers to sell more liquid assets. If the investor faces the possibility of a downstream shock, however, the solution differs in several important ways. If the ensuing shock is sufficiently large, the nonmyopic investor unwinds positions more than immediately necessary and, all else being equal, prefers to retain more of the assets with low temporary price impact in order to hedge against possible distress. More generally, optimal liquidation involves selling strictly more of the assets with a lower ratio of permanent to temporary impact, even if these assets are relatively illiquid. The results suggest that properly accounting for the possibility of future shocks should play a role in managing large portfolios. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/56/11/1997 [article] Optimal portfolio liquidation with distress risk [texte imprimé] / Brown, David B., Auteur ; Bruce Ian Carlin, Auteur ; Miguel Sousa Lobo, Auteur . - 2011 . - pp. 1997-2014. Management Langues : Anglais (eng) in Management science > Vol. 56 N° 11 (Novembre 2010) . - pp. 1997-2014 Mots-clés : Portfolio management Optimal liquidation Price impact Index. décimale : 658 Organisation des entreprises. Techniques du commerce Résumé : We analyze the problem of an investor who needs to unwind a portfolio in the face of recurring and uncertain liquidity needs, with a model that accounts for both permanent and temporary price impact of trading. We first show that a risk-neutral investor who myopically deleverages his position to meet an immediate need for cash always prefers to sell more liquid assets. If the investor faces the possibility of a downstream shock, however, the solution differs in several important ways. If the ensuing shock is sufficiently large, the nonmyopic investor unwinds positions more than immediately necessary and, all else being equal, prefers to retain more of the assets with low temporary price impact in order to hedge against possible distress. More generally, optimal liquidation involves selling strictly more of the assets with a lower ratio of permanent to temporary impact, even if these assets are relatively illiquid. The results suggest that properly accounting for the possibility of future shocks should play a role in managing large portfolios. DEWEY : 658 ISSN : 0025-1909 En ligne : http://mansci.journal.informs.org/cgi/content/abstract/56/11/1997

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