VWAP Execution as an Optimal Strategy

Takashi Kato

Papers from arXiv.org

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.

Date: 2014-08, Revised 2017-01
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Published in JSIAM Letters, Vol. 7 (2015), pp.33-36

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