Flexible VWAP Executions in Electronic Trading

  • Peter Gomber
  • Marco Lutat
  • Adrian Wranik
Part of the Lecture Notes in Business Information Processing book series (LNBIP, volume 4)


For the execution of large equity orders, institutional investors often use the Volume Weighted Average Price (VWAP) as a benchmark to measure execution quality. To achieve this, they have the possibility to either cross their orders in a non-intermediated electronic system or to submit a VWAP agency order to a broker that executes the orders manually. Though more expensive in explicit costs, in particular due to higher flexibility, agency VWAP is still more attractive to investors than VWAP crossings. This work proposes a new electronic crossing model addressing and solving the flexibility restrictions present in today’s VWAP crossing.


Electronic trading Crossing VWAP 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. 1.
    Schwartz, R.A., Francioni, R.: Equity Markets in Action: The Fundamentals of Liquidity, Market Structure & Trading. John Wiley & Sons, Hoboken, New Jersey (2004)Google Scholar
  2. 2.
    Massimb, M.N., Phelps, B.D.: Electronic Trading, Market Structure and Liquidity. Financial Analysts Journal 50(1), 39–50 (1994)CrossRefGoogle Scholar
  3. 3.
    Madhavan, A.: VWAP Strategies. Transaction Performance Spring, 32–38 (2002)Google Scholar
  4. 4.
    Naes, R., Skjeltorp, J.A.: Equity trading by institutional investors: Evidence on order submission strategies. Journal of Banking and Finance 27, 1779–1817 (2003)CrossRefGoogle Scholar
  5. 5.
    Edelen, R.M., Kadlec, G.B.: Agency Costs of Institutional Trading (November 25, 2006)Google Scholar
  6. 6.
    Madhavan, A.: Implementation of Hedge Fund Strategies. Hedge Fund Strategies Fall, 74–80 (2002)Google Scholar
  7. 7.
    Konishi, H.: Optimal slice of a VWAP trade. Journal of Financial Markets 5(2), 197–221 (2002)CrossRefGoogle Scholar
  8. 8.
    Bertsimas, D., Lo, A.W.: Optimal control of execution costs. Journal of Financial Markets 1, 1–50 (1998)CrossRefGoogle Scholar
  9. 9.
    Kakade, S.M., Kearns, M., Mansour, Y., Ortiz, L.E.: Competitive algorithms for VWAP and limit order trading. In: EC 2004: Proceedings of the 5th ACM conference on Electronic commerce, pp. 189–198. ACM Press, New York (2004)CrossRefGoogle Scholar
  10. 10.
    Naes, R., Odegaard, B.A.: Equity Trading by Institutional Investors: To Cross or Not to Cross. SSRN eLibrary (2005) Google Scholar
  11. 11.
    Schwartz, R.A., Wood, R.A.: Best Execution - A candid analysis. The Journal of Portfolio Management Summer, 37–48 (2003)Google Scholar
  12. 12.
    Madhavan, A., Cheng, M.: In Search of Liquidity: Block Trades in the Upstairs and Downstairs Markets. The Review of Financial Studies 10(1), 175–203 (1997)CrossRefGoogle Scholar
  13. 13.
    Almgren, R., Lorenz, J.: Bayesian Adaptive Trading with a Daily Cycle. Journal of Trading 1(4), 38–46 (2006)CrossRefGoogle Scholar
  14. 14.
    New York Stock Exchange: NYSE Crossing Sessions – Extending the Market’s Reach, (accessed July 14, 2007)
  15. 15.
  16. 16.

Copyright information

© Springer-Verlag Berlin Heidelberg 2008

Authors and Affiliations

  • Peter Gomber
    • 1
  • Marco Lutat
    • 1
  • Adrian Wranik
    • 1
  1. 1.Chair of e-Finance, E-Finance LabJohann Wolfgang Goethe-University FrankfurtFrankfurtGermany

Personalised recommendations