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Optimal Execution and Block Trade Pricing: A General Framework

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  • Olivier Guéant

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.

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  • Olivier Guéant, 2015. "Optimal Execution and Block Trade Pricing: A General Framework," Applied Mathematical Finance, Taylor & Francis Journals, vol. 22(4), pages 336-365, September.
    • Handle: RePEc:taf:apmtfi:v:22:y:2015:i:4:p:336-365
    DOI: 10.1080/1350486X.2015.1042188
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    Cited by:

    1. Olivier Guéant, 2016. "The Financial Mathematics of Market Liquidity: From Optimal Execution to Market Making," Post-Print hal-01393136, HAL.
    2. Olivier Guéant & Jiang Pu, 2015. "Option pricing and hedging with execution costs and market impact," Post-Print hal-01393124, HAL.

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