Optimal Trading Strategies: Quantitative Approaches for Managing Market Impact and Trading Risk

This is the first book that I have found that explains VWAP trading from the point of view of a money manager. It provides a mathematical description and decomposition of the VWAP statistic. It then provides an outstanding approach of how to devise a trading strategy to beat VWAP based upon proprietary price movement estimates and ones risk appetite.Most industry personnel that I have spoke with, i.e., brokers, give convoluted explanations of what VWAP really is just so they can not be held accountable to any performance measure or trading outcome. Optimal Trading Strategies provides a simplistic explanation of VWAP trading and provides a technique to forecast ones result prior to commencement of trading. And just as importantly, it shows how managers can take the advantage back from brokers and win at the VWAP trading game. This is an outstanding reference and one that has been long over-due in the marketplace.Signed,A Very Happy Manager

This is the finest resource for Transaction Cost Analysis I have ever seen. The authors give a comprehensive overview of the current trends in the Transaction Cost Analysis arena and discuss advantages and disadvantages of each approach. They then provide realistic and simple measures to evaluate broker-dealer, and trader performance. I have used these techniques to decided upon which brokers to use to execute a trade. The most exciting part of this book to me is that it provides techniques to evaluate both Agency and Principal Bids. Inferior Brokers Beware- Your time is up!

Optimal Trading Strategies provides a complete set of power mathematical tools for professional investors. At the core of this toolbox is a simple optimization formula: min ç(x) s.t. R(x)OTS assists investors and fund managers in addressing the fundamental problem known as the "Traders dilemma". Trading too aggressively increases costs, while trading too passively increases exposure to risk. This formula calculates the minimum cost [ç] of a trade [x] while ensuring that the risk of the trade [R(x)] will be within an acceptable level of risk [R*] for an investor.This is a great concept, and OTS makes it powerful with it's collection of precision tools to calculate both cost and risk. Costs are unbundled into nine distinct components. Thorough mathematical formulas are provided for analyzing each component. A key example is the 3 models in chapter 9 designed to calculate market impact of a potential trade. The 3 different approaches help clarify the elusive effects that imbalance, volatility, trading style, and liquidity have on market impact.There is also a practical discussion of why traders select the popular Volume Weighted Price Strategy (VWAP). It is accompanies by the most complete mathematical analysis of VWAP I've ever seen. Examples with solutions are even included for practice using these newly acquired tools.The authors of OTS utilize an unprecedented combination of mathematical theory and real world experience to create a powerful framework that focuses investors on maintaining equilibrium between acceptable levels of cost and risk. No professional investors toolkit will be complete without it. Their new dilemma is where to pick up a copy of OTS.

This book deals with an all-to-often forgotten component of investment science: "the science of trading". The authors brilliantly fill a major gap in the literature and its real-world applications. This book provides both an accessible introduction to the science of trading, and a rigorous quantitative treatment.So far, most of the investment science literature assumes trades to be instantaneous, cost-free and divorced from returns. But to the active trader, portfolio manager, plan sponsor or student of finance, these assumptions can mean the difference between a winning and a losing investment.The authors present a methodology that will allow the uninitiated to qualitatively distinguish between trading strategies and gauge their brokers' quality of trade execution. The more technical reader will be provided with techniques necessary for the construction of customized trading strategies, tailored to his particular investment objectives, be they portfolio rebalancing, statistical arbitrage, swing trading, etc...If you're directly or indirectly involved in the trading of securities, this book is not only an invaluable reference, it's a one of a kind must-read!

This book brilliantly fills a very significant gap in the investment science literature and its real-world applications. It deals with a fundamental, but all-to-often forgotten, component of the investment process : the science of trading. The authors not only give an accessible and comprehensive introduction to the science of trading, but they also offer a rigorous quantitative treatment of the subject. The book provides the non-quantitative and un-initiated with the necessary methodology to gauge the quality of trade execution provided by their brokers.It also allows the more technically inclined to implement optimal trading strategies, to suit their particular needs, whether they be stat-arb, portfolio rebalancing, etc...So far, most of the literature in quantitative finance focuses strictly on the creation of optimal portfolios, ignores liquidity issues and assumes the trading of securities to be instantaneous, and without impact on returns. But wether you're an active trader, portfolio manager, plan sponsor, risk analyst or student of quantitative finance, you cannot afford to ignore liquidity issues and trading costs. This book is a must-have reference, that will be of valuable use!