Abstract
We consider the infinite-horizon optimal basket portfolio liquidation problem for a von Neumann–Morgenstern investor in a multi-asset extension of the liquidity model of Almgren (Appl. Math. Finance 10:1–18, 2003) with cross-asset impact. Using a stochastic control approach, we establish a “separation theorem”: the sequence of portfolios held during an optimal liquidation depends only on the (co-)variance and (cross-asset) market impact of the assets, while the speed with which these portfolios are reached depends only on the utility function of the trader. We derive partial differential equations for both the sequence of portfolios reached during the execution and the trading speed.
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