VWAP Execution as an Optimal Strategy
Trading and Market Microstructure
2017-02-01 v4
Abstract
The volume weighted average price (VWAP) execution strategy is well known and widely used in practice. In this study, we explicitly introduce a trading volume process into the Almgren-Chriss model, which is a standard model for optimal execution. We then show that the VWAP strategy is the optimal execution strategy for a risk-neutral trader. Moreover, we examine the case of a risk-averse trader and derive the first-order asymptotic expansion of the optimal strategy for a mean-variance optimization problem.
Cite
@article{arxiv.1408.6118,
title = {VWAP Execution as an Optimal Strategy},
author = {Takashi Kato},
journal= {arXiv preprint arXiv:1408.6118},
year = {2017}
}
Comments
13 pages, 3 figures, long version of the paper "VWAP execution as an optimal strategy" in JSIAM Letters, Vol. 7 (2015), pp.33-36