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arXiv · 2505.15611

Shortermism and excessive risk taking in optimal execution with a target performance

Emilio Barucci·Yuheng Lan
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Abstract

We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the broker evaluated at the market price plus a slippage cost yielding a quadratic inventory cost. Over a short horizon, this type of remuneration leads, at the same time, to a more aggressive and less risky strategy compared to the classical one, and over a long horizon the performance turns to be poorer and more dispersed.

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Emilio Barucci, Yuheng Lan. 2025-05-21. Shortermism and excessive risk taking in optimal execution with a target performance. https://arxiv.org/abs/2505.15611

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