Leveraging IS and TC: Optimal order execution subject to reference strategies
The paper addresses the problem of meta order execution from a broker-dealer's point of view in Almgren-Chriss model under execution risk. A broker-dealer agency is authorized to execute an order of trading on some client's behalf. The strategies that the agent is allowed to deploy is subject to a benchmark, referred to as the reference strategy, regulated by the client. We formulate the broker's problem as a utility maximization problem in which the broker seeks to maximize his utility of excess profit-and-loss at the execution horizon, of which optimal feedback strategies are obtained in closed form. In the absence of execution risk, the optimal strategies subject to reference strategies are deterministic. We establish an affine structure among the trading trajectories under optimal strategies subject to general reference strategies using implementation shortfall (IS) and target close (TC) orders as basis. Furthermore, an approximation theorem is proposed to show that with small error, general reference strategies can be approximated by piece-wise constant ones, of which the optimal strategy is piece-wise linear combination between IS and TC orders. We conclude the paper with numerical experiments illustrating the trading trajectories as well as histograms of terminal wealth and utility at investment horizon under optimal strategies versus those under TWAP strategies.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Automatic design optimization of preference-based subjective evaluation with online learning in crowdsourcing environment
A preference-based subjective evaluation is a key method for evaluating generative media reliably. However, its huge combinations of pairs prohibit it from being applied to large-scale evaluation using crowdsourcing. To …
Optimal Execution under Liquidity Uncertainty
We study an optimal execution strategy for purchasing a large block of shares over a fixed time horizon. The execution problem is subject to a general price impact that gradually dissipates due to market resilience. This…
CDR-Bench: Evaluating Faithful Execution of Compositional, Order-Sensitive Data Refinement Recipes
Data refinement involves executing multi-step recipes over evolving text states, where both composition and execution order of processing operators determine the outcome. While existing benchmarks either isolate text edi…
Optimal order execution under price impact: A hybrid model
In this paper we explore optimal liquidation in a market populated by a number of heterogeneous market makers that have limited inventory-carrying and risk-bearing capacity. We derive a reduced form model for the dynamic…
Optimal Cost-Preference Trade-off Planning with Multiple Temporal Tasks
Autonomous robots are increasingly utilized in realistic scenarios with multiple complex tasks. In these scenarios, there may be a preferred way of completing all of the given tasks, but it is often in conflict with opti…