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Adaptive Arrival Price Robert Almgren
 

Summary: Adaptive Arrival Price
Robert Almgren
and Julian Lorenz
April 27, 2006
Abstract
Electronic trading of equities and other securities makes heavy use
of "arrival price" algorithms, that determine optimal trade sched-
ules by balancing the market impact cost of rapid execution against
the volatility risk of slow execution. In the standard formulation,
mean-variance optimal strategies are static: they do not modify
the execution speed in response to price motions observed dur-
ing trading. We show that with a more realistic formulation of the
mean-variance tradeoff, and even with no momentum or mean re-
version in the price process, substantial improvements are possible
for adaptive strategies that spend trading gains to reduce risk, by
accelerating execution when the price moves in the trader's favor.
The improvement is larger for large initial positions.

Electronic Trading Services, Banc of America Securities LLC, New York;
Robert.Almgren@bofasecurities.com.

  

Source: Almgren, Robert F. - Courant Institute of Mathematical Sciences, New York University
Kearns, Michael - Department of Computer and Information Science, University of Pennsylvania

 

Collections: Computer Technologies and Information Sciences; Mathematics