Optimal Execution of a VWAP Order: A Stochastic Control Approach

@article{Frei2015OptimalEO,
  title={Optimal Execution of a VWAP Order: A Stochastic Control Approach},
  author={C. Frei and Nicholas Westray},
  journal={Econometrics: Mathematical Methods \& Programming eJournal},
  year={2015}
}
We consider the optimal liquidation of a position of stock (long or short) where trading has a temporary market impact on the price. The aim is to minimize both the mean and variance of the order slippage with respect to a benchmark given by the market volume‐weighted average price (VWAP). In this setting, we introduce a new model for the relative volume curve which allows simultaneously for accurate data fit, economic justification, and mathematical tractability. Tackling the resulting… Expand
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