medium · Quantitative Finance microstructure-arb
In the Almgren-Chriss framework for optimal execution, a trader with a high degree of risk aversion will choose a trading trajectory that is most likely to:
- Back-load the execution schedule to take advantage of later liquidity.
- Only execute at the closing bell to match the daily benchmark.
- Execute the trade at a perfectly constant rate (TWAP) throughout the day.
- Front-load the execution schedule by trading more aggressively at the start.
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