Instruct: Identify the main and secondary category of Arxiv papers based on the titles and abstracts
Query: Risk-Sensitive Optimal Execution via a Conditional Value-at-Risk
  Objective   We consider a liquidation problem in which a risk-averse trader tries to
liquidate a fixed quantity of an asset in the presence of market impact and
random price fluctuations. The trader encounters a trade-off between the
transaction costs incurred due to market impact and the volatility risk of
holding the position. Our formulation begins with a continuous-time and
infinite horizon variation of the seminal model of Almgren and Chriss (2000),
but we define as the objective the conditional value-at-risk (CVaR) of the
implementation shortfall, and allow for dynamic (adaptive) trading strategies.
In this setting, we are able to derive closed-form expressions for the optimal
liquidation strategy and its value function.
  Our results yield a number of important practical insights. We are able to
quantify the benefit of adaptive policies over optimized static policies. The
relevant improvement depends only on the level of risk aversion: for moderate
levels of risk aversion, the optimal dynamic policy outperforms the optimal
static policy by 5-15%, and outperforms the optimal volume weighted average
price (VWAP) policy by 15-25%. This improvement is achieved through dynamic
policies that exhibit "aggressiveness-in-the-money": trading is accelerated
when price movements are favorable, and is slowed when price movements are
unfavorable.
  From a mathematical perspective, our analysis exploits the dual
representation of CVaR to convert the problem to a continuous-time, zero-sum
game. We leverage the idea of the state-space augmentation, and obtain a
partial differential equation describing the optimal value function, which is
separable and a special instance of the Emden-Fowler equation. This leads to a
closed-form solution. As our problem is a special case of a
linear-quadratic-Gaussian control problem with a CVaR objective, these results
may be interesting in broader settings.

18
The categories of this paper are: econ
4
The categories of this paper are: cond-mat
26
The categories of this paper are: bayes-an
11
The categories of this paper are: hep-lat
29
The categories of this paper are: funct-an
20
The categories of this paper are: acc-phys
8
The categories of this paper are: hep-ex
25
The categories of this paper are: patt-sol
32
The categories of this paper are: atom-ph
13
The categories of this paper are: quant-ph
24
The categories of this paper are: dg-ga
3
The categories of this paper are: physics
16
The categories of this paper are: stat
21
The categories of this paper are: adap-org
34
The categories of this paper are: chem-ph
0
The categories of this paper are: hep-ph