David vs Goliath (You against the Markets), A dynamic programming approach to separate the impact and timing of trading costs

Kashyap, Ravi

doi:10.1016/j.physa.2019.122848

Cited by 4 publications

(1 citation statement)

References 99 publications

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“…the speed of recovery of supply/demand after a trade) to executed trades as part of an execution strategy (Alfonsi, Fruth, & Schied, 2010;Obizhaeva & Wang, 2013;Siu, Guo, Zhu, & Elliott, 2019;Tsoukalas et al, 2019). Furthermore, Kashyap (2020) splits the execution cost into market impact (price impact due to the executed trade) and market timing (price movement due to other traders during the trade duration) and suggests a stochastic dynamic programming approach to solve numerically for optimal execution strategies.…”

Section: Introductionmentioning

confidence: 99%

Optimal Trade Execution in Cryptocurrency Markets

Bundi

Wei²,

Khashanah

2023

Preprint

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Novel technologies allow cryptocurrency exchanges to offer innovative services that set them apart from other exchanges. In this paper we study the distinct features of cryptocurrency fee schedules and the implications for optimal trade execution. We formulate an optimal execution strategy that minimizes the trading fees charged by the exchange. We further provide a proof for the existence of an optimal execution strategy for this type of fee schedule. In fact, the optimal strategy involves both market and limit orders on various price levels. The optimal order distribution scheme depends on the market conditions expressed in terms of the distribution of limit order execution probabilities and the exchange's specific configuration of the fee schedule. Our results indicate that a strategy kernel with an exponentially decaying allocation of trade volume to price levels further away from the best price provides a superior performance and potential reduction of trade execution cost of more than 60%. The robustness of these results is confirmed in an empirical study. To our knowledge this is the first study of optimal trade execution that takes into consideration the full fee schedule of exchanges in general.

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Section: Introductionmentioning

confidence: 99%

Optimal Trade Execution in Cryptocurrency Markets

Bundi

Wei²,

Khashanah

2023

Preprint

View full text Add to dashboard Cite

show abstract

Optimal trade execution in cryptocurrency markets

Bundi,

Wei,

Khashanah

2024

Digit Finance

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Novel technologies allow cryptocurrency exchanges to offer innovative services that set them apart from other exchanges. In this paper we study the distinct features of cryptocurrency fee schedules and the implications for optimal trade execution. We formulate an optimal execution strategy that minimizes the trading fees charged by the exchange. We further provide a proof for the existence of an optimal execution strategy for this type of fee schedule. The optimal strategy involves both market and limit orders on various price levels. The optimal order distribution scheme depends on the market conditions expressed in terms of the distribution of limit order execution probabilities and the exchange’s specific configuration of the fee schedule. Our results indicate that a strategy kernel with an exponentially decaying allocation of trade volume to price levels further away from the best price provides superior performance and potential reduction of trade execution cost of more than 60%. The robustness of these results is confirmed in an empirical study. To our knowledge, this is the first study of optimal trade execution that takes into consideration the full fee schedule of exchanges in general.

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The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol

Kashyap

2024

Research in International Business and Finance

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David vs Goliath (You against the Markets), A dynamic programming approach to separate the impact and timing of trading costs

Cited by 4 publications

References 99 publications

Optimal Trade Execution in Cryptocurrency Markets

Optimal Trade Execution in Cryptocurrency Markets

Optimal trade execution in cryptocurrency markets

The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol

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