Mechanics of good trade execution in the framework of linear temporary market impact

We define the concept of good trade execution and we construct explicit adapted good trade execution strategies in the framework of linear temporary market impact. Good trade execution strategies are dynamic, in the sense that they react to the actual realisation of the traded asset price path over...

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Veröffentlicht in:Quantitative finance Jg. 21; H. 1; S. 143 - 163
Hauptverfasser: Bellani, Claudio, Brigo, Damiano
Format: Journal Article
Sprache:Englisch
Veröffentlicht: Bristol Routledge 2021
Taylor & Francis Ltd
Schlagworte:
C - Mathematical
C - Mathematical and Quantitative Methods
C6 -Mathematical Methods and Programming
C60 - General
C61 - Optimization Techniques
Dynamic Analysis
Expected values
Market microstructure
Programming Models
Quantitative finance
Quantitative finance techniques
Quantitative trading strategies
ISSN:1469-7688, 1469-7696
Online-Zugang:Volltext
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Zusammenfassung:We define the concept of good trade execution and we construct explicit adapted good trade execution strategies in the framework of linear temporary market impact. Good trade execution strategies are dynamic, in the sense that they react to the actual realisation of the traded asset price path over the trading period; this is paramount in volatile regimes, where price trajectories can considerably deviate from their expected value. Remarkably, however, the implementation of our strategies does not require the full specification of an SDE evolution for the traded asset price, making them robust across different models. Moreover, rather than minimising the expected trading cost, good trade execution strategies minimise trading costs in a pathwise sense, a point of view not yet considered in the literature. The mathematical apparatus for such a pathwise minimisation hinges on certain random Young differential equations that correspond to the Euler-Lagrange equations of the classical Calculus of Variations. These Young differential equations characterise our good trade execution strategies in terms of an initial value problem that allows for easy implementations.
Bibliographie:ObjectType-Article-1
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ISSN:1469-7688
1469-7696
DOI:10.1080/14697688.2020.1814395