  When executing their orders, investors are proposed different strategies by
brokers and investment banks. Most orders are executed using VWAP algorithms.
Other basic execution strategies include POV (also called PVol) -- for
percentage of volume --, IS -- implementation shortfall -- or Target Close. In
this article dedicated to POV strategies, we develop a liquidation model in
which a trader is constrained to liquidate a portfolio with a constant
participation rate to the market. Considering the functional forms commonly
used by practitioners for market impact functions, we obtain a closed-form
expression for the optimal participation rate. Also, we develop a microfounded
risk-liquidity premium that permits to better assess the costs and risks of
execution processes and to give a price to a large block of shares. We also
provide a thorough comparison between IS strategies and POV strategies in terms
of risk-liquidity premium.
