|
|
|
| Algorithmic Trading Strategy Based on Market Impact and Opportunity Cost |
| YAN Ru-Zhen, LI Ping, ZENG Yong |
| University of Electronic Science and Technology of China, Chengdu, China |
|
|
|
|
Abstract This paper develops a method to estimate the opportunity cost of a trading strategy if the blocks are not completely executed, and studies an optimal trading strategy that a highfrequency trader considers both market impact and opportunity cost. The results indicate that if investor only takes into account market impact, or considers both the market impact and opportunity cost when the turnover probability of slice order is equal in all periods, the optimal trading strategy is VWAP strategy. This paper obtains an analytical solution for the special case that investor can expect the total trading volume, makes numerical experiments for the general case that the turnover probability of slice order is not equal in all trading periods, and the total transaction cost of MIOC strategy is lower than VWAP strategy under three different situations that the turnover probability is increased, decreased and UShaped separately.
|
|
Received: 20 May 2012
|
|
|
|
|
|
|
2012, Vol. 9 
