Optimal Execution and Block Trade Pricing: A General Framework

Olivier Guéant

Applied Mathematical Finance, 2015, vol. 22, issue 4, 336-365

Abstract: In this article, we develop a general framework to study optimal execution and to price block trades. We prove existence of optimal liquidation strategies and provide regularity results for optimal strategies under very general hypotheses. We exhibit a Hamiltonian characterization for the optimal strategy that can be used for numerical approximation. We also focus on the important topic of block trade pricing and propose a methodology to give a price to financial (il)liquidity. In particular, we provide a closed-form formula for the price of a block trade when there is no time constraint to liquidate.

Date: 2015
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Working Paper: Optimal execution and block trade pricing: a general framework (2015)
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DOI: 10.1080/1350486X.2015.1042188

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