When to Cross the Spread

Felix Naujokat & Ulrich Horst
In this article the problem of curve following in an illiquid market is addressed. Using techniques of singular stochastic control, we extend the results of [NW11] to a two- sided limit order market with temporary market impact and resilience, where the bid ask spread is now also controlled. We first show existence and uniqueness of an optimal control. In a second step, a suitable version of the stochastic maximum principle is derived which yields a...
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