Optimal VWAP Trading and Relative Volume∗
نویسندگان
چکیده
Volume Weighted Average Price (VWAP) for a traded financial asset is total traded value divided by total traded volume. It is a quality of execution metric popular with institutional traders for measuring the price impact of trading. VWAP is also a ‘virtuous trade’ that minimizes price impact by spreading the liquidity demand of large orders across the trading period. The optimal mean-variance VWAP trading strategy is derived in this paper, by projecting from a space of strategies defined by a filtration enlarged by knowledge of total traded volume to the space of strategies defined by the observed (trader accessible) filtration. The optimal mean-variance VWAP trading strategy is linear combination of a variance-minimizing VWAP strategy and a ‘price directional’ trading strategy, which are obtained as explicit closed-form solutions. ∗ c ⃝ Copyright James McCulloch, Vladimir Kazakov, 2009. The authors thank Hardy Hulley for his invaluable suggestions, insights and criticisms. This paper is a draft: please do not quote without permission. †Macquarie University, contact email: [email protected] ‡Quantitative Finance Research Centre (QFRC), University of Technology Sydney 1
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