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dc.contributor.author Brown, DB
dc.contributor.author Carlin, BI
dc.contributor.author Lobo, MS
dc.date.accessioned 2011-06-21T17:31:00Z
dc.date.issued 2010-11-01
dc.identifier.citation Management Science, 2010, 56 (11), pp. 1997 - 2014
dc.identifier.issn 0025-1909
dc.identifier.uri http://hdl.handle.net/10161/4429
dc.description.abstract We analyze the problem of an investor who needs to unwind a portfolio in the face of recurring and uncertain liquidity needs, with a model that accounts for both permanent and temporary price impact of trading. We first show that a risk-neutral investor who myopically deleverages his position to meet an immediate need for cash always prefers to sell more liquid assets. If the investor faces the possibility of a downstream shock, however, the solution differs in several important ways. If the ensuing shock is sufficiently large, the nonmyopic investor unwinds positions more than immediately necessary and, all else being equal, prefers to retain more of the assets with low temporary price impact in order to hedge against possible distress. More generally, optimal liquidation involves selling strictly more of the assets with a lower ratio of permanent to temporary impact, even if these assets are relatively illiquid. The results suggest that properly accounting for the possibility of future shocks should play a role in managing large portfolios. © 2010 INFORMS.
dc.format.extent 1997 - 2014
dc.language.iso en_US en_US
dc.relation.ispartof Management Science
dc.relation.isversionof 10.1287/mnsc.1100.1235
dc.title Optimal portfolio liquidation with distress risk
dc.title.alternative en_US
dc.type Journal Article
dc.description.version Version of Record en_US
duke.date.pubdate 2010-11-0 en_US
duke.description.endpage 2014 en_US
duke.description.issue 11 en_US
duke.description.startpage 1997 en_US
duke.description.volume 56 en_US
dc.relation.journal Management Science en_US
pubs.issue 11
pubs.organisational-group /Duke
pubs.organisational-group /Duke/Fuqua School of Business
pubs.publication-status Published
pubs.volume 56
dc.identifier.eissn 1526-5501

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