medium · Market Microstructure
According to the Almgren-Chriss framework, how does a trader's risk aversion parameter λ_risk influence the optimal execution trajectory of a large sell order?
- Increasing risk aversion leads to front-loading the execution to minimize timing risk.
- Risk aversion only affects the choice of broker, not the intraday schedule of trades.
- Higher risk aversion leads to a linear TWAP trajectory to minimize market impact.
- Increasing risk aversion delays the start of execution to wait for better liquidity conditions.
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