 In this article  , we develop a liquidation model in which the trader is constrained to liquidate a portfolio at constant participation rate  . Considering the functional forms usually used by practitioners  , we obtain a closed-form expression for the optimal participation rate and for the liquidity premium a trader should quote to buy a large block of shares. We also show that the difference in terms of liquidity premiumbetween the constant participation rate case and the usual Almgren-Chriss-like case never exceeds 15\% .
When executing their orders, investors are proposed different strategies by brokers and investment banks. Most orders are executed using VWAP algorithms. Other basic execution strategies include POV (also called PVol) -- for percentage of volume --, IS -- implementation shortfall -- or Target Close. In this article dedicated to POV strategies , we develop a liquidation model in which a trader is constrained to liquidate a portfolio with a constant participation rate to the market . Considering the functional forms usually used by practitioners for market impact functions , we obtain a closed-form expression for the optimal participation rate . Also, we develop a microfounded risk-liquidity premium that permits to better assess the costs and risks of execution processes and to give a price to a large block of shares. We also provide a thorough comparison between IS strategies and POV strategies in terms of risk-liquidity premium .
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When executing their orders, investors are proposed different strategies by brokers and investment banks. Most orders are executed using VWAP algorithms. Other basic execution strategies include POV (also called PVol) -- for percentage of volume --, IS -- implementation shortfall -- or Target Close.
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dedicated to POV strategies
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the
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with a
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to the market
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for market impact functions
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and for the liquidity premium
. Also, we develop a microfounded risk-liquidity premium that permits to better assess the costs and risks of execution processes and to give a price to
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trader should quote to buy a
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show that the difference
provide a thorough comparison between IS strategies and POV strategies
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liquidity premiumbetween the constant participation rate case and the usual Almgren-Chriss-like case never exceeds 15\%
risk-liquidity premium