medium · Market Microstructure market-impact
A portfolio manager uses an Almgren-Chriss optimal trajectory for a highly risk-averse strategy.
Compared to a TWAP (risk-neutral) strategy, how will the trade execution be distributed?
- Execution will be back-loaded, saving size for the close to capture end-of-day liquidity.
- Execution will only occur during narrow windows of unusually low volatility.
- Execution will be spread perfectly evenly across the entire trading horizon.
- The execution will be front-loaded, trading more aggressively at the beginning.
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