Optimal VWAP execution under transient price impact

Alexander Barzykin and Fabrizio Lillo

Papers from arXiv.org

Abstract: We solve the problem of optimal liquidation with volume weighted average price (VWAP) benchmark when the market impact is linear and transient. Our setting is indeed more general as it considers the case when the trading interval is not necessarily coincident with the benchmark interval: Implementation Shortfall and Target Close execution are shown to be particular cases of our setting. We find explicit solutions in continuous and discrete time considering risk averse investors having a CARA utility function. Finally, we show that, contrary to what is observed for Implementation Shortfall, the optimal VWAP solution contains both buy and sell trades also when the decay kernel is convex.

Date: 2019-01, Revised 2019-01
New Economics Papers: this item is included in nep-mst and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1901.02327

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