What if We Knew What the Future Brings? Optimal Investment for a Frontrunner with Price Impact
Bank, Peter; Dolinsky, Yan; Rásonyi, Miklós; Springer (Contributor)
In this paper we study optimal investment when the investor can peek some time units into the future, but cannot fully take advantage of this knowledge because of quadratic transaction costs. In the Bachelier setting with exponential utility, we give an explicit solution to this control problem with intrinsically infinite-dimensional memory. This is made possible by solving the dual problem where we make use of the theory of Gaussian Volterra integral equations.
Published in: Applied Mathematics & Optimization, 10.1007/s00245-022-09885-w, Springer Nature