Shortermism and excessive risk taking in optimal execution with a target performance

Emilio Barucci and Yuheng Lan

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Abstract: We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the broker evaluated at the market price plus a slippage cost yielding a quadratic inventory cost. Over a short horizon, this type of remuneration leads, at the same time, to a more aggressive and less risky strategy compared to the classical one, and over a long horizon the performance turns to be poorer and more dispersed.

Date: 2025-05
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