hard · Quantitative Finance

If the daily volatility σ of a stock increases, how does the Almgren-Chriss model suggest the optimal trading trajectory should change for a risk-averse trader?

1. The trajectory remains unchanged because volatility only affects the variance, not the expected impact cost.
2. The trader should switch to a passive strategy using only limit orders.
3. The trader should slow down execution to avoid the increased 'noise' in the price process.
4. The trader should accelerate execution (front-load more aggressively) to reduce exposure to the higher volatility.

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