Optimal execution in Hong Kong given a market-on-close benchmark
针对香港交易所采用最后1分钟5个价格中位数作为收盘价的规则，提出随机控制模型求解最优执行策略，在恒生指数成分股上实现平均滑点标准差降低约6%。
For stocks traded on the Hong Kong Exchange, the median of five prices taken over the last minute of trading is currently chosen as the closing price. We introduce a stochastic control formulation to target such a median benchmark in an empirically justified model which takes the key microstructural features into account. We solve this problem by providing an explicit and efficient algorithm which even has applications beyond this paper as it can be used for the dynamic linear approximation of any square-integrable random variable. Implementing the algorithm on the stocks of the Hang Seng Index, we find an average improvement of around 6% in standard deviation of slippage compared to an average trader’s execution. We conclude by providing a novel decomposition of the trading risk into that which is intrinsic to the median benchmark and that due to execution.