Ítem
Solo Metadatos
Hedge-fund management with liquidity constraint
Título de la revista
Autores
Ramírez Jaime, Hugo Eduardo
DUCK, PETER
JOHNSON, PAUL V.
HOWELL, SYDNEY
Fecha
2019
Directores
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Editor
World Scientific Publishing Co. Pte Ltd
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Resumen
Abstract
We propose a model for a manager of a hedge fund with a liquidity constraint, where he is seeking to optimize his utility of wealth, with one and multiple period horizons. By using stochastic control techniques, we state the corresponding multi-dimensional Hamilton-Jacobi-Bellman partial differential equation and we use a robust numerical approximation to obtain its unique viscosity solution. We examine the effects of the liquidity constraint on managerial trading decisions and optimal allocation, finding that the manager behaves in a less risky manner. We also calculate the cost of being at sub-optimal positions as the difference in the certainty equivalent payoff for the manager. Moreover, we compare the values of a benchmark hedge fund with another one having a risky asset with a higher rate of return but less liquidity, finding that higher rate of return with a liquidity constraint does not always lead to greater return. © 2019 World Scientific Publishing Company.
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Keywords
Finite differences , Hedge-fund management , Liquidity , Semi-lagrangian , Stochastic control
