R&D

This latest research paper, written by Yadh Hafsi, in collaboration with Etienne Chevalier and Vathana Ly Vath concentrates on studying optimal liquidation strategies under partial information for a single asset within a finite time horizon. It introduces a model specifically designed for high-frequency trading, where price formation is driven solely by order flow dynamics, captured through mutually stimulating marked Hawkes processes. Operating within a limit order book framework, the model accounts for permanent price impact and transient market impact, while incorporating liquidity as a hidden Markov process that influences the intensities of bid and ask price processes. The optimal liquidation problem is formulated as an impulse control problem, with the dynamics of the hidden Markov chain addressed through normalized filtering equations. The value function is characterized as the limit of a sequence of auxiliary continuous functions, defined recursively. This formulation facilitates the application of a dynamic programming principle to derive optimal strategies and supports the development of an implementable algorithm to approximate the problem. The study is enriched with numerical results and visualizations of candidate optimal strategies, offering actionable insights for practical implementation.