Execution and block trade pricing with optimal constant rate of participation

Olivier Guéant

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Abstract: 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%.

Date: 2014
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Citations: View citations in EconPapers (1)

Published in journal of mathematical finance, 2014, 4 (4)

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01393120

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