Equilibrium Effects of Intraday Order-Splitting Benchmarks
Mathematical Finance
2020-03-31 v6
Abstract
This paper presents a continuous-time model of intraday trading, pricing, and liquidity with dynamic TWAP and VWAP benchmarks. The model is solved in closed-form for the competitive equilibrium and also for non-price-taking equilibria. The intraday trajectories of TWAP trading targets cause predictable intraday patterns of price pressure, and randomness in VWAP target trajectories induces additional randomness in intraday price-pressure patterns. TWAP and VWAP trading both reduce market liquidity and increase price volatility relative to just terminal trading targets alone. The model is computationally tractable, which lets us provide a number of numerical illustrations.
Cite
@article{arxiv.1803.08336,
title = {Equilibrium Effects of Intraday Order-Splitting Benchmarks},
author = {Jin Hyuk Choi and Kasper Larsen and Duane J. Seppi},
journal= {arXiv preprint arXiv:1803.08336},
year = {2020}
}