Execution and block trade pricing with optimal constant rate of participation - Archive ouverte HAL
Article Dans Une Revue journal of mathematical finance Année : 2014

Execution and block trade pricing with optimal constant rate of participation

Olivier Guéant

Résumé

In this article, we develop a liquidation model in which the trader is constrained to liquidate a portfolio at a constant participation rate. Considering the functional forms usually used by practitioners, we obtain a closed-form expression for the optimal participation rate and for the liquidity premium a trader should quote to buy a large block. We also show that the difference in terms of liquidity premium between the constant participation rate case and the usual Almgren-Chriss-like case never exceeds 15%.
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hal-01393120 , version 1 (06-11-2016)

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  • HAL Id : hal-01393120 , version 1

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Olivier Guéant. Execution and block trade pricing with optimal constant rate of participation. journal of mathematical finance, 2014, 4 (4). ⟨hal-01393120⟩
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