Dynamic portfolio execution
Abstract/Contents
- Abstract
- As financial markets have become increasingly complex, the need to understand price dynamics at the microstructure level has become vital for market participants. Over the past decade, highly sophisticated ``high-frequency'' trading firms have emerged and have come to dominate equity markets and other asset classes, controlling anywhere between 50\%-90\% of the average traded volume on any given day. These sophisticated players utilize price and supply/demand dynamics in limit order markets to make trading decisions and provide liquidity at the micro-second level. In this environment, the optimal management of execution costs and control of price impact is of central importance to market participants, including portfolio managers for pension and mutual funds, hedge funds, market markers, etc. This thesis analyzes the optimal execution problem of a portfolio manager trading multiple assets in a limit order book environment. In addition to the consideration of liquidity and risk of each individual asset, we have to consider cross-asset interactions in these two dimensions, which are challenging to address. Focusing on the market microstructure, we develop a tractable order book model to capture the supply/demand dynamics in a multi-asset setting. The results suggest that cross-asset risk and liquidity considerations are of critical importance in constructing the optimal execution policies. Even when the goal is to trade a single asset, its optimal execution may involve transitory trades in other assets. In general, optimally managing the risk of the portfolio during the execution process influences the synchronization of trading in different assets. Moreover, correlations in the liquidity across assets lead to complex patterns in the optimal execution policies. In particular, we highlight cases where aggregate costs can be reduced by temporarily overshooting one's target portfolio.
Description
| Type of resource | text |
|---|---|
| Form | electronic; electronic resource; remote |
| Extent | 1 online resource. |
| Publication date | 2013 |
| Issuance | monographic |
| Language | English |
Creators/Contributors
| Associated with | Tsoukalas, Gerassimos |
|---|---|
| Associated with | Stanford University, Department of Management Science and Engineering. |
| Primary advisor | Giesecke, Kay |
| Thesis advisor | Giesecke, Kay |
| Thesis advisor | Infanger, Gerd |
| Thesis advisor | Weyant, John P. (John Peter) |
| Advisor | Infanger, Gerd |
| Advisor | Weyant, John P. (John Peter) |
Subjects
| Genre | Theses |
|---|
Bibliographic information
| Statement of responsibility | Gerassimos Tsoukalas. |
|---|---|
| Note | Submitted to the Department of Management Science and Engineering. |
| Thesis | Thesis (Ph.D.)--Stanford University, 2013. |
| Location | electronic resource |
Access conditions
- Copyright
- © 2013 by Gerassimos Tsoukalas
- License
- This work is licensed under a Creative Commons Attribution Non Commercial 3.0 Unported license (CC BY-NC).
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