In principle, portfolio optimization in electricity markets can make use of the standard mean-variance model going back to Markowitz. Yet a key restriction in most electricity markets is the limited liquidity. Therefore the standard model has to be adapted to cope with limited liquidity. An...

We study the optimal liquidation problem in a market model where the bid price follows a geometric pure jump process whose local characteristics are driven by an unobservable finite-state Markov chain and by the liquidation rate. This model is consistent with stylized facts of high frequency...

In this paper, we develop the conic finance framework for optimal execution of a large portfolio in an illiquid market. We extend the classical optimal execution results by considering stochastic exogenous liquidity effects as well as temporary price impact functions. We depart from the...

We study the consumption and investment model under time-varying liquidity constraints (TVLC) that are widely used in reality. We first develop a martingale method to analyze the case in which the borrowing limit is specified by the debt-to-income ratio limit and then extend this framework to...

We present a simulation-and-regression method for solving dynamic portfolio optimization problems in the presence of general transaction costs, liquidity costs and market impact. This method extends the classical least squares Monte Carlo algorithm to incorporate switching costs, corresponding...

We investigate the effect of the regime-switching transaction costs and dividends on liquidity premium and investor's optimal strategy. With reasonably calibrated parameters, we show that counter-cyclical transaction costs substantially raise liquidity premium while pro-cyclical dividends...

In the standard approach to fund valuation, it is often assumed that markets are perfectly liquid and hence assets have unique prices. In practice, however, as has been widely documented, this is not the case. Asset values are impacted by deterioration of market liquidity (market depth)....

In principle, portfolio optimization in electricity markets can make use of the standard mean‐variance model going back to Markowitz. Yet a key restriction in most electricity markets is the limited liquidity. Therefore the standard model has to be adapted to cope with limited liquidity. An...

In this paper, we solve a continuous-time portfolio choice problem of an investor under a Markov jump linear system that effectively captures stochasticity in asset returns, price impacts, and market resilience. Specifically, the investor chooses his portfolio to maximize the expected excess...

Classical financial market theories built upon the assumption of a perfect market have been coping with frictions on both developed and emerging markets. There are numerous factors affecting the operation of financial markets and their participants’ behavior, but illiquidity is a continuous...