Under linear price impact and Poisson liquidation arrivals, the optimal DeFi liquidation policy is to trade a constant fraction sqrt(phi/k) of inventory per unit time, yielding ergodic reward 2*r*lambda*eta*S0 - lambda*eta^2*b - 2*lambda*eta^2*sqrt(k*phi).
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Ergodic optimal liquidations in DeFi
Under linear price impact and Poisson liquidation arrivals, the optimal DeFi liquidation policy is to trade a constant fraction sqrt(phi/k) of inventory per unit time, yielding ergodic reward 2*r*lambda*eta*S0 - lambda*eta^2*b - 2*lambda*eta^2*sqrt(k*phi).