Unwinding Stochastic Order Flow: When to Warehouse Trades
We study how to unwind stochastic order flow with minimal transaction costs. Stochastic order flow arises, e.g., in the central risk book (CRB), a centralized trading desk that aggregates order flows within a financial institution. The desk can warehouse in-flow orders, ideally netting them against subsequent opposite orders (internalization), or route them to the market (externalization) and incur costs related to price impact and bid-ask spread. We model and solve this problem for a general class of in-flow processes, enabling us to study in detail how in-flow characteristics affect optimal strategy and core trading metrics. Our model allows for an analytic solution in semi-closed form and is readily implementable numerically. Compared with a standard execution problem where the order size is known upfront, the unwind strategy exhibits an additive adjustment for projected future in-flows. Its sign depends on the autocorrelation of orders; only truth-telling (martingale) flow is unwound myopically. In addition to analytic results, we present extensive simulations for different use cases and regimes, and introduce new metrics of practical interest.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Unwinding Toxic Flow with Partial Information
We consider a central trading desk which aggregates the inflow of clients' orders with unobserved toxicity, i.e. persistent adverse directionality. The desk chooses either to internalise the inflow or externalise it to t…
Helicase processivity and not the unwinding velocity exhibits universal increase with force
Helicases, involved in a number of cellular functions, are motors that translocate along singlestranded nucleic acid and couple the motion to unwinding double-strands of a duplex nucleic acid. The junction between double…
Unwinding Rotations Reduces VR Sickness in Nonsimulated Immersive Telepresence
Immersive telepresence, when a user views the video stream of a $360^\circ$ camera in a remote environment using a Head Mounted Display (HMD), has great potential to improve the sense of being in a remote environment. In…
To Hedge or Not to Hedge: Optimal Strategies for Stochastic Trade Flow Management
This paper addresses the trade-off between internalisation and externalisation in the management of stochastic trade flows. We consider agents who must absorb flows and manage risk by deciding whether to warehouse it or …
ManagementCo-Design of Topology, Scheduling, and Path Planning in Automated Warehouses
We address the warehouse servicing problem (WSP) in automated warehouses, which use teams of mobile agents to bring products from shelves to packing stations. Given a list of products, the WSP amounts to finding a plan f…
Scheduling