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Stability for gains from large investors’ strategies in \(M_{1}/J_{1}\) topologies. (English) Zbl 1459.60121

Summary: We prove continuity of a controlled SDE solution in Skorokhod’s \(M_{1}\) and \(J_{1}\) topologies and also uniformly, in probability, as a nonlinear functional of the control strategy. The functional comes from a finance problem to model price impact of a large investor in an illiquid market. We show that \(M_{1}\)-continuity is the key to ensure that proceeds and wealth processes from (self-financing) càdlàg trading strategies are determined as the continuous extensions for those from continuous strategies. We demonstrate by examples how continuity properties are useful to solve different stochastic control problems on optimal liquidation and to identify asymptotically realizable proceeds.

MSC:

60H10 Stochastic ordinary differential equations (aspects of stochastic analysis)
60F17 Functional limit theorems; invariance principles
91G10 Portfolio theory
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