Hedge-fund management with liquidity constraint

"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 diffe...

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Detalles Bibliográficos
Autores Principales: "RAMIREZ, HUGO E., DUCK, PETER, JOHNSON, PAUL V., HOWELL, SYDNEY"
Formato: Artículo (Article)
Lenguaje:Inglés (English)
Publicado: World Scientific Publishing Co. Pte Ltd 2019
Materias:
Acceso en línea:https://repository.urosario.edu.co/handle/10336/22155
https://doi.org/10.1142/S0219024919500262
Descripción
Sumario:"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."