Abstract (EN)

Usually partial equilibrium models used for pricing financial derivatives rely on price equilibrium dynamics which doesn’t explicitly take the trade size into account. However any price is implicitly based on the balance between supply and demand to the extent that the exchanged quantity itself needs to be specifically included within the model. More specifically, given a limited period of time a large player may need to split the entire trade into smaller trenches in order to mitigate market impact. This paper precisely quantitatively and financially offers such optimal strategies to enhance returns. Although based on non linear market impact functions tailored to various temporary or permanent market conditions, this framework gives access to analytical solutions while highlighting key aspects of liquidity. Financial contributions are illustrated in the EEX market driven by both rigid supply and inelastic demand.