Optimal liquidation in dark pools

Arbeitspapier

We consider a large trader seeking to liquidate a portfolio using both a transparent trading venue and a dark pool. Our model captures the price impact of trading in transparent traditional venues as well as the execution uncertainty of trading in a dark pool. The unique optimal execution strategy uses both venues continuously. The order size in the dark pool can over- or underrepresent the portfolio size depending on adverse selection and the correlation structure of the assets in the portfolio. Introduction a dark pool results in delayed trading at the traditional venue. The appeal of the dark pool is increased by liquidity but reduced by adverse selection. By pushing up prices at the traditional venue and parallel selling in the dark pool, a trader might generate profits; we provide sufficient conditions to rule out such profitable price manipulation strategies.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2011-058

Classification and Topics

• Classification: Wirtschaft ; Mathematical Methods ; Optimization Techniques; Programming Models; Dynamic Analysis ; Portfolio Choice; Investment Decisions
• Subject: dark pools ; optimal liquidation ; adverse selection ; market microstructure ; illiquid markets ; Wertpapierhandel ; Manipulation ; Börsenkurs ; Marktliquidität ; Mikrostrukturanalyse ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Kratz, Peter ; Schöneborn, Torsten
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/56720
• Last update: 10.03.2025, 11:41 AM CET