Portfolio valuation under liquidity constraints with permanent price impact

Arbeitspapier

When institutional investors rearrange their portfolios, they should consider both the temporary and the permanent price impacts. After a temporary price impact the order book fully recovers, whereas a permanent price impact changes the equilibrium price, having effects on the resulting portfolio. In this paper, for a given period, we introduce an optimization problem for valuing illiquid portfolios with permanent price impacts. We show how to find the optimal trade to satisfy certain portfolio constraints. As a policy implication, we note that introducing permanent price impacts in internal or external regulation can substantially change liquidity risk or capital requirements.

Object Details

• ISBN: 978-615-5754-34-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IEHAS Discussion Papers ; No. MT-DP - 2017/36

Classification and Topics

• Classification: Wirtschaft ; Portfolio Choice; Investment Decisions
• Subject: Portfolio Valuation ; Liquidity Risk ; Permanent Price Impact ; SEC Rule 22e-4

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Csóka, Péter ; Hevér, Judit
• Event: Veröffentlichung
• (who): Hungarian Academy of Sciences, Institute of Economics
• (where): Budapest
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/222013
• Last update: 10.03.2025, 11:43 AM CET