Optimal liquidation in dark pools |
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Authors: | Peter Kratz Torsten Schöneborn |
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Institution: | 1. Institut de Mathématiques de Marseille , Aix-Marseille Université , 39, rue F. Joliot-Curie, 13453 , Marseille Cedex 13 , France kratz@mathematik.hu-berlin.de;3. Deutsche Bank AG , London , UK |
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Abstract: | We consider a large trader liquidating a portfolio using a transparent trading venue with price impact and a dark pool with execution uncertainty. The optimal execution strategy uses both venues continuously, with dark pool orders over-/underrepresenting the portfolio size depending on return correlations; trading at the traditional venue is delayed depending on dark liquidity. Pushing up prices at the traditional venue while selling in the dark pool might generate profits. If future returns depend on historical dark pool liquidity, then sending orders to the dark pool can be worthwhile simply to gather information. |
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Keywords: | Dark pools Optimal liquidation Pinging Market microstructure Illiquid markets |
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