Equilibrium effects of intraday order-splitting benchmarks

DOI10.1007/S11579-020-00278-7zbMATH Open1461.91294arXiv1803.08336OpenAlexW3013600325WikidataQ114222184 ScholiaQ114222184MaRDI QIDQ829334FDOQ829334

Authors: N. E. Zubov 

Publication date: 5 May 2021

Published in: Mathematics and Financial Economics (Search for Journal in Brave)

Abstract: This paper presents a continuous-time model of intraday trading, pricing, and liquidity with dynamic TWAP and VWAP benchmarks. The model is solved in closed-form for the competitive equilibrium and also for non-price-taking equilibria. The intraday trajectories of TWAP trading targets cause predictable intraday patterns of price pressure, and randomness in VWAP target trajectories induces additional randomness in intraday price-pressure patterns. TWAP and VWAP trading both reduce market liquidity and increase price volatility relative to just terminal trading targets alone. The model is computationally tractable, which lets us provide a number of numerical illustrations.

Full work available at URL: https://arxiv.org/abs/1803.08336

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zbMATH Keywords

equilibriamarket microstructureliquiditydynamic tradingmarket-maker inventoryportfolio rebalancingTWAPVWAP

Mathematics Subject Classification ID

Financial markets (91G15)

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Cited In (9)

• Endogenous noise trackers in a Radner equilibrium
• Liquidity in competitive dealer markets
• Price impact equilibrium with transaction costs and TWAP trading
• Concentrated equilibrium and intraday patterns in financial markets
• Learning about latent dynamic trading demand
• Trading Constraints in Continuous-Time Kyle Models
• Equilibrium asset pricing with transaction costs
• A multi-agent targeted trading equilibrium with transaction costs
• Price impact in Nash equilibria

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