Optimal sell order submission strategy for informed traders: limit orders or market orders?

摘要

The stock price is assumed to follow the geometric Brownian motion, the insider is assumed to know exactly the stock liquidation price on a certain day in the near future which will be lower than the current market price. The expected return of submitting a limit sell order is obtained based on the boundary crossing probability of the Brownian bridge. By comparing the expected return of submitting the optimal sell limit order with the certain return of submitting a sell market order, the insider gets his optimal sell order submission strategy. The results show that the order choice depends on the following factors: volatility of the stock price, time to the day when the information is fully disclosed and the ratio of the liquidation price to current market price. The higher the values of these three factors, the higher the possibility of submitting a sell limit order, and the higher the ask price of the sell limit order is set.