What is it about?
Solve a class of linear-quadratic Markov decision processes with constraints in a closed form. Use the solution for optimal order execution in limit order books.
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Why is it important?
Due to the complexity of dynamic programming, closed-form solutions are always highly appreciated. The algorithm we propose solves a wide class of dynamic programming problems. We show how it can be used effectively to find the optimal order execution strategy for investors.
Perspectives
We hope this article can encourage scholars to identify special structures in complicated real-world problems and find neat solutions.
Dr Ningyuan Chen
Hong Kong University of Science and Technology
Read the Original
This page is a summary of: A Partitioning Algorithm for Markov Decision Processes with Applications to Market Microstructure, Management Science, February 2017, INFORMS,
DOI: 10.1287/mnsc.2016.2639.
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