presentation-fe570-lecture10

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1、ExecutionStrategiesBenchmark-DrivenSchedulesCost-DrivenSchedules/Risk-NeutralFrameworkCost-DrivenSchedules/Risk-AverseFrameworkFE570FinancialMarketsandTradingLecture13.ExecutionStrategies(Ref.AnatolySchmidtCHAPTER13ExecutionStrategies)SteveYangStevensInstituteofTechnology11/27/2012ExecutionStrateg

2、iesBenchmark-DrivenSchedulesCost-DrivenSchedules/Risk-NeutralFrameworkCost-DrivenSchedules/Risk-AverseFrameworkOutline1ExecutionStrategies2Benchmark-DrivenSchedules3Cost-DrivenSchedules/Risk-NeutralFramework4Cost-DrivenSchedules/Risk-AverseFramework5TheTaker'sDilemmaExecutionStrategiesBenchmark-Dr

3、ivenSchedulesCost-DrivenSchedules/Risk-NeutralFrameworkCost-DrivenSchedules/Risk-AverseFrameworkExecutionStrategiesTradingstrategiesthatwerediscussedinformerchaptersarederivedforproducingpositivereturnsinround-triptrades(seeJorion2010).Sometimes,wereferthesestrategiesasopportunisticalgorithm.Imple

4、mentationshortfall(IS)isameasureofthetotaltransactioncosts.ISrepresentsthedierencebetweentheactualportfolioreturnandthepaperestimateofthisreturnatthebeginningoftrading.IftradingofanorderwithsizeXstartedatpricep0(arrivalprice)andendedatpricepN,andtheorderwassplitintoNchildordersofsizexkthatwerell

5、edatpricepk,thenXXXIS=xkpkp0xk+(pNp0)(Xxk)+C(1)whereCisthexedcost.Thersttwotermsrepresentexecutioncost,andthethirdtellsopportunitycost.ExecutionStrategiesBenchmark-DrivenSchedulesCost-DrivenSchedules/Risk-NeutralFrameworkCost-DrivenSchedules/Risk-AverseFrameworkExecutionStrategiesNotethatnota

6、llchildordersmaybeexecutedduringthetradingday.Forexample,submissionofchildordersmaybeconditionedonspecicpricebehavior.Theunlledamount,PXxk,determinesanopportunitycost.Algorithmictradingisaneweldthatfocusesonmakingdecisionswhereandhowtotrade.Theprofessionaltradingcommunityattributesalgorithmict

7、radingprimarilytotheexecutionstategies(Johnson2010).Thequestionofwhethertotradeisbeyondthescopeofourlecturetoday.Itisassumedthatthedecisiontotradeagivenamountwithinagiventimehorizonhasbeenmadeandweareconcernedonl