2008 Poster Sessions : The Execution Game

Student Name : Beomsoo Park
Advisor : Benjamin Van Roy
Research Areas: Information Systems
Abstract
We consider a trader who aims to liquidate a large position in the presence of arbitrageurs who hope to profit from the trader's activity. Arbitrageurs are uncertain about the trader's position and learn from observed price fluctuations. This is a dynamic game with asymmetric information. We present an algorithm for computing perfect Bayesian equilibrium behavior and conduct numerical experiments. Our results demonstrate that the trader's strategy differs significantly from one that would be optimal in the absence of arbitrageurs and that accounting for the presence of strategic adversaries can greatly reduce transaction costs. Unlike prior execution models, which yield predetermined trade sequences, trades in our dynamic game depend on random price fluctuations.

Bio
Beomsoo Park is interested in mathematical modeling and analysis of various problems in economics and finance, including optimal execution strategy and portfolio optimization. He is currently a Ph.D student of Electrical Engineering at Stanford University. He received the B.S.(2002) in Electrical Engineering from Korea Advanced Institute of Science and Technology (KAIST), Korea. He has been a recipient of the Presidential Award for Academic Excellence (2002) in Korea.