SHORT-TERMISM AND EXCESSIVE RISK TAKING IN OPTIMAL EXECUTION WITH A TARGET PERFORMANCE

In this paper, we deal with the optimal execution problem when the broker’s goal is to reach an upward performance barrier avoiding a downward one over an infinite horizon. The performance is provided by the wealth accumulated by trading in the market and the shares detained by the broker evaluated at the market price plus a slippage cost. In the short run, this type of remuneration leads, at the same time, to a more aggressive and less risky strategy compared to the classical one. Instead, in the long run, the performance is poorer and more dispersed.