Optimal slice of a VWAP trade，2002#
2. Affiliation:#
Tokyo-Mitsubishi Securities, University of Tsukuba, Japan
3. Keywords:#
Market microstructure; VWAP trade; Optimal trade execution
4. Urls:#
https://www.sciencedirect.com/science/article/abs/pii/S1386418101000234
5. Summary:#
(1): The background of this article is optimal execution of a VWAP trade.
(2): Previous methods require multivariable optimization, and the research motivation is to develop a single variable optimization approach. The proposed approach is well motivated.
(3): The research methodology proposed in this paper is a static optimal execution strategy of a VWAP trade, which can be calculated by an iteration of a single variable optimization.
(4): The method in this paper achieved reduced execution error of a VWAP trade, which supports the goal of optimal trade execution.
6. Conclusion:#
(1): The significance of this piece of work is the derivation of the static optimal execution strategy for a VWAP trade, which minimizes the expected squared execution error. The proposed method achieves reduced execution error, supporting the goal of optimal trade execution.
(2): Innovation point: The proposal of a single variable optimization method for determining the optimal execution strategy for a VWAP trade is an innovative approach, which simplifies the previous multivariable optimization methods.
(3): Performance: The proposed method achieved reduced execution error in both single-stock and basket trades, indicating its effectiveness in optimal trade execution. Actual trading data and simulations were used to examine theoretical results, improving the practical applicability of the proposed method.
(4): Workload: The proposed methodology involves a static optimization strategy, which may limit its application in cases with small orders and low liquidity. Additionally, the proposed method focuses on minimizing execution error caused by price movement only, neglecting the direct cost of market impact and indirect cost of information leakage in a VWAP trade.