medium · Market Microstructure lob
In the Almgren-Chriss optimal execution model, what is the primary consequence of a trader having very high risk aversion (λ_risk rightarrow ∞)?
- The trajectory will be back-loaded to capture deep late-day liquidity pools.
- The optimal trajectory becomes a perfectly linear TWAP execution schedule.
- The optimal trajectory shifts toward immediate execution to eliminate timing risk.
- The trader will wait until the very end of the trading day to execute so as to minimize market impact.
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