Optimal Execution: A Review

39 Pages Posted: 29 Dec 2022

Date Written: December 19, 2022


This review article is intended to collect and summarize many of the results in the field of optimal execution over the last twenty years. In doing so, we describe the general workings of the limit order book so that the sources of costs and risks which need to be optimized are understood. The initial models considered propose simple dynamics for prices which allow easily computable strategies which maximize risk-adjusted profits. Subsequently, the review is divided into two major parts. The first explores several works which investigate how optimal liquidation strategies are modified to account for more complex dynamics, namely other stochastic or non-linear factors. The second presents optimal trading strategies when the agent utilizes benchmarks in addition to risk-adjusted wealth, or when she has objectives beyond optimal liquidation.

Keywords: algorithmic trading, price impact, stochastic optimization

JEL Classification: C61, G11, G12

Suggested Citation

Donnelly, Ryan Francis, Optimal Execution: A Review (December 19, 2022). Available at SSRN: https://ssrn.com/abstract=4307177 or http://dx.doi.org/10.2139/ssrn.4307177

Ryan Francis Donnelly (Contact Author)

King's College London ( email )

London, England WC2R 2LS
United Kingdom

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