hard · Market Microstructure
According to the Almgren-Chriss (2001) optimal execution model, how does a risk-averse trader (λ_risk > 0) differ from a risk-neutral trader in their execution trajectory?
- The risk-averse trader front-loads the execution, trading more aggressively at the beginning of the period.
- The risk-averse trader executes at a constant rate throughout the day (TWAP).
- The risk-averse trader avoids trading in the first hour to let the market settle.
- The risk-averse trader back-loads the execution to wait for potential mean-reversion in prices.
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