Execution and Block Trade Pricing with Optimal Constant Rate of Participation.

Summary In this article, we develop a liquidation model in which the trader is constrained to liquidate a portfolio at a 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. We also show that the difference in terms of liquidity premium between the constant participation rate case and the usual Almgren-Chriss-like case never exceeds 15%.