Optimal trade execution of equities in a limit order market

R. Coggins; A. Blazejewski; M. Aitken

doi:10.1109/CIFER.2003.1196284

Optimal trade execution of equities in a limit order market

R. Coggins, A. Blazejewski, M. Aitken

Research output: Chapter in Book/Report/Conference proceeding › Conference proceeding contribution › peer-review

7 Citations (Scopus)

Abstract

The paper describes an approach for optimising trade execution in a limit order market. The way a trade is executed becomes important when the trade is a significant proportion of the day's turnover in a particular security. Under these circumstances limited liquidity leads to a significant transaction cost referred to as trade shortfall. We describe a method for calculating a trade execution plan which balances intra-day variations in the supply of liquidity against the risk of adverse future price movements. Our trade execution plans correspond to solutions of discrete time dynamic programming problems. This formulation admits the specification of transaction costs within a Value at Risk framework. The trade execution plans are derived and tested for three popular stocks on the Australian Stock Exchange (ASX). The performance of the plans is evaluated on an out of sample test set of the limit order book for each security and compared to three simpler trade execution strategies.

Original language	English
Title of host publication	2003 IEEE International Conference on Computational Intelligence for Financial Engineering, 2003. Proceedings
Place of Publication	Piscataway, NJ
Publisher	Institute of Electrical and Electronics Engineers (IEEE)
Pages	371-378
Number of pages	8
ISBN (Electronic)	0780376544
DOIs	https://doi.org/10.1109/CIFER.2003.1196284
Publication status	Published - Mar 2003
Externally published	Yes
Event	2003 IEEE International Conference on Computational Intelligence for Financial Engineering, CIFEr - 2003 - Hong Kong, China Duration: 20 Mar 2003 → 23 Mar 2003

Other

Other	2003 IEEE International Conference on Computational Intelligence for Financial Engineering, CIFEr - 2003
Country/Territory	China
City	Hong Kong
Period	20/03/03 → 23/03/03

Keywords

Australia
Books
Costs
Finance
Forward contracts
Heuristic algorithms
Identity management systems
Portfolios
Security
Testing

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10.1109/CIFER.2003.1196284

Cite this

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title = "Optimal trade execution of equities in a limit order market",

abstract = "The paper describes an approach for optimising trade execution in a limit order market. The way a trade is executed becomes important when the trade is a significant proportion of the day's turnover in a particular security. Under these circumstances limited liquidity leads to a significant transaction cost referred to as trade shortfall. We describe a method for calculating a trade execution plan which balances intra-day variations in the supply of liquidity against the risk of adverse future price movements. Our trade execution plans correspond to solutions of discrete time dynamic programming problems. This formulation admits the specification of transaction costs within a Value at Risk framework. The trade execution plans are derived and tested for three popular stocks on the Australian Stock Exchange (ASX). The performance of the plans is evaluated on an out of sample test set of the limit order book for each security and compared to three simpler trade execution strategies.",

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author = "R. Coggins and A. Blazejewski and M. Aitken",

year = "2003",

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doi = "10.1109/CIFER.2003.1196284",

language = "English",

pages = "371--378",

booktitle = "2003 IEEE International Conference on Computational Intelligence for Financial Engineering, 2003. Proceedings",

publisher = "Institute of Electrical and Electronics Engineers (IEEE)",

address = "United States",

note = "2003 IEEE International Conference on Computational Intelligence for Financial Engineering, CIFEr - 2003 ; Conference date: 20-03-2003 Through 23-03-2003",

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Coggins, R, Blazejewski, A & Aitken, M 2003, Optimal trade execution of equities in a limit order market. in 2003 IEEE International Conference on Computational Intelligence for Financial Engineering, 2003. Proceedings., 1196284, Institute of Electrical and Electronics Engineers (IEEE), Piscataway, NJ, pp. 371-378, 2003 IEEE International Conference on Computational Intelligence for Financial Engineering, CIFEr - 2003, Hong Kong, China, 20/03/03. https://doi.org/10.1109/CIFER.2003.1196284

Optimal trade execution of equities in a limit order market. / Coggins, R.; Blazejewski, A.; Aitken, M.
2003 IEEE International Conference on Computational Intelligence for Financial Engineering, 2003. Proceedings. Piscataway, NJ: Institute of Electrical and Electronics Engineers (IEEE), 2003. p. 371-378 1196284.

Research output: Chapter in Book/Report/Conference proceeding › Conference proceeding contribution › peer-review

TY - GEN

T1 - Optimal trade execution of equities in a limit order market

AU - Coggins, R.

AU - Blazejewski, A.

AU - Aitken, M.

PY - 2003/3

Y1 - 2003/3

N2 - The paper describes an approach for optimising trade execution in a limit order market. The way a trade is executed becomes important when the trade is a significant proportion of the day's turnover in a particular security. Under these circumstances limited liquidity leads to a significant transaction cost referred to as trade shortfall. We describe a method for calculating a trade execution plan which balances intra-day variations in the supply of liquidity against the risk of adverse future price movements. Our trade execution plans correspond to solutions of discrete time dynamic programming problems. This formulation admits the specification of transaction costs within a Value at Risk framework. The trade execution plans are derived and tested for three popular stocks on the Australian Stock Exchange (ASX). The performance of the plans is evaluated on an out of sample test set of the limit order book for each security and compared to three simpler trade execution strategies.

AB - The paper describes an approach for optimising trade execution in a limit order market. The way a trade is executed becomes important when the trade is a significant proportion of the day's turnover in a particular security. Under these circumstances limited liquidity leads to a significant transaction cost referred to as trade shortfall. We describe a method for calculating a trade execution plan which balances intra-day variations in the supply of liquidity against the risk of adverse future price movements. Our trade execution plans correspond to solutions of discrete time dynamic programming problems. This formulation admits the specification of transaction costs within a Value at Risk framework. The trade execution plans are derived and tested for three popular stocks on the Australian Stock Exchange (ASX). The performance of the plans is evaluated on an out of sample test set of the limit order book for each security and compared to three simpler trade execution strategies.

KW - Australia

KW - Books

KW - Costs

KW - Finance

KW - Forward contracts

KW - Heuristic algorithms

KW - Identity management systems

KW - Portfolios

KW - Security

KW - Testing

UR - https://www.scopus.com/pages/publications/33748714223

U2 - 10.1109/CIFER.2003.1196284

DO - 10.1109/CIFER.2003.1196284

M3 - Conference proceeding contribution

AN - SCOPUS:33748714223

SP - 371

EP - 378

BT - 2003 IEEE International Conference on Computational Intelligence for Financial Engineering, 2003. Proceedings

PB - Institute of Electrical and Electronics Engineers (IEEE)

CY - Piscataway, NJ

T2 - 2003 IEEE International Conference on Computational Intelligence for Financial Engineering, CIFEr - 2003

Y2 - 20 March 2003 through 23 March 2003

ER -

Optimal trade execution of equities in a limit order market

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