medium · Market Microstructure market-impact
In the Almgren-Chriss (2001) optimal execution framework, what happens to the trajectory of an order as a trader's risk aversion parameter λ_risk increases?
- The trajectory becomes perfectly linear (TWAP) to minimize impact.
- The trajectory becomes more front-loaded to minimize timing risk.
- Execution is delayed toward the end of the day to reduce permanent impact.
- The trader waits for high-volume periods (VWAP) to hide the order.
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