Using Short-Term Predictions for Participation-Rate Driven Trading Algorithms

Abstract

We propose a decomposition of algorithm’s a priori performance, from which we sep- arate contributions came from different factors. We show that, in combining estimations on volume and price and always taking into account the price-impact effect, one is able to optimize the execution in a sequential manner, which we refer to as on-line optimization. We illustrate the ability to adapt to real execution context, respect algorithm’s constraint and achieve better performance of the proposed method in the optimal execution problem.

Keywords: optimal liquidation, on-line optimization, VWAP, IS, PVOL, slippage