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Execution and block trade pricing with optimal constant rate of participation

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  • Olivier Guéant

    (LJLL - Laboratoire Jacques-Louis Lions - UPMC - Université Pierre et Marie Curie - Paris 6 - UPD7 - Université Paris Diderot - Paris 7 - CNRS - Centre National de la Recherche Scientifique)

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%.

Suggested Citation

  • Olivier Guéant, 2014. "Execution and block trade pricing with optimal constant rate of participation," Post-Print hal-01393120, HAL.
    • Handle: RePEc:hal:journl:hal-01393120
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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.

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