Block trade contracting

• 成果类型: Article
• 署名作者: Baldauf, Markus; Frei, Christoph; Mollner, Joshua
• 署名单位: University of British Columbia; University of Alberta; Northwestern University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2024.103901
• 发表日期: 2024
• 关键词: Agency conflict; Block trading; CONTRACTING; Dealer-client relationship; Price impact

摘要

We study the optimal execution problem in a principal-agent setting. A client contracts to purchase from a dealer. The dealer hedges, buying from the market, creating temporary and permanent price impact. The client chooses a contract, which specifies payment as a function of market prices; hidden action precludes conditioning on the dealer's hedging trades. We show the first-best benchmark is theoretically achievable with an unrestricted contract set. We then consider weighted-average-price contracts, which are commonly used. In the continuous-time limit, the optimal weighting entails a constant density at interior times and discrete masses at the extremes.