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arXiv · 2602.01968

Optimal Liquidation in a Defaultable Market

Daniel Hernández-Hernńdez·Harold A. Moreno-Franco·José-Luis Pérez
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Abstract

In this paper we address the problem of optimal liquidation of a large portfolio composed by securities exposed to default risk. The default time is described in terms of a Brownian motion representing the evolution of the value of the firm, whose assets are available in the market for investors. Considering that selling a large number of assets has a significant impact in the price, and hence in the portfolio's value, the control problem involved to describe the optimal strategy to liquidate a large position is analyzed. Under suitable assumptions in the model, an explicit solution is given to the value function and a precise description of the optimal strategy is obtained.

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Daniel Hernández-Hernńdez, Harold A. Moreno-Franco, José-Luis Pérez. 2026-02-02. Optimal Liquidation in a Defaultable Market. https://arxiv.org/abs/2602.01968

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