PT - JOURNAL ARTICLE AU - Robert F Engle AU - Robert Ferstenberg TI - Execution Risk AID - 10.3905/jot.2007.682136 DP - 2007 Mar 31 TA - The Journal of Trading PG - 10--20 VI - 2 IP - 2 4099 - https://pm-research.com/content/2/2/10.short 4100 - https://pm-research.com/content/2/2/10.full AB - Transaction costs in trading involve both risk and return. Risk is a result of price movements and price impacts over a gradual trading period. Return is associated with the cost of immediate execution. The trade-off between risk and return in optimal execution reflects the same risk preferences as in ordinary investment. Models of the joint optimization of positions and trades show conditions under which optimal execution does not depend on the other holdings in the portfolio. Optimal execution, however, may call for trades in assets other than those listed in the trading order; these can hedge the trading risks. The execution risk model for trading with reversals and continuations implies a natural measure of liquidity risk.TOPICS: Risk management, statistical methods