ABSTRACT
The literature on optimal execution deals with the optimal way to build or unwind a position, that is, with execution strategies and tactics. In this chapter, we go beyond strategies and tactics, and we show how the models of the previous chapters – with a focus on the Almgren-Chriss framework – can be used to give a price to a block of shares. This is important to price risk trades, but also more generally to give a price to (il)liquidity. In this chapter, we introduce in particular the concept of risk-liquidity premium that can be used for pricing purposes, but also to penalize illiquid portfolios in many models.
