Trade execution games in a Markovian environment

This paper examines a trade execution game for two large traders in a generalized price impact model. We incorporate a stochastic and sequentially dependent factor that exogenously affects the market price into financial markets. Our model accounts for how strategic and environmental uncertainties affect the large traders' execution strategies. We formulate an expected utility maximization problem for two large traders as a Markov game model. Applying the backward induction method of dynamic pro...