A trader wishes to unwind a position of 200,000 units in an asset over eight days. The dollar bid–offer spread, as a function of daily trading volume q, is a + b cq where a = 0.2, b = 0.15 and c = 0.1 and q is measured in thousands. The standard deviation of the price change per day is $1.50. What is the optimal trading strategy for minimizing the 99% confidence level for the
costs? What is the average time the trader waits before selling? How does this average time change as the confidence level changes?

  • CreatedJuly 30, 2015
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