Abstract
The volume weighted average price (VWAP) over rolling number of days in the averaging period is used as a benchmark price by market participants and can be regarded as an estimate for the price that a passive trader will pay to purchase securities in a market. The VWAP is commonly used in brokerage houses as a quantitative trading tool and also appears in Australian taxation law to specify the price of share-buybacks of publically-listed companies. Most of the existing literature on VWAP focuses on strategies and algorithms to acquire market securities at a price as close as possible to VWAP. In our setup the volume process is modeled via a shifted squared Ornstein-Uhlenbeck process and a geometric Brownian motion is used to model the asset price. We derive the analytical formulae for moments of VWAP and then use the moment matching approach to approximate a distribution of VWAP. Numerical results for moments of VWAP and call-option prices have been verified by Monte Carlo simulations.
Original language | English |
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Title of host publication | Inspired by Finance |
Subtitle of host publication | The Musiela Festschrift |
Editors | Yuri Kabanov, Marek Rutkowski, Thaleia Zariphopoulou |
Place of Publication | Cham, Switzerland |
Publisher | Springer, Springer Nature |
Pages | 461-474 |
Number of pages | 14 |
ISBN (Electronic) | 9783319020693 |
ISBN (Print) | 3319020684, 9783319020686 |
DOIs | |
Publication status | Published - 2014 |