Optimal VWAP Trading Strategy and Relative Volume

James McCulloch and Vladimir Kazakov

No 201, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: Volume Weighted Average Price (VWAP) for a stock is total traded value divided by total traded volume. It is a simple quality of execution measurement popular with institutional traders to measure the price impact of trading stock. This paper uses classic mean-variance optimization to develop VWAP strategies that attempt to trade at better than the market VWAP. These strategies exploit expected price drift by optimally `front-loading' or `back-loading' traded volume away from the minimum VWAP risk strategy.

New Economics Papers: this item is included in nep-mst
Date: 2007-09-01
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