Optimal Dynamic Order Submission Strategies in Some Stylized Trading Problems

Posted: 10 Sep 1999

See all articles by Lawrence Harris

Lawrence Harris

University of Southern California - Marshall School of Business - Finance and Business Economics Department; Institute for Quantitative Research in Finance (the Q-Group); Financial Economists Roundtable; Interactive Brokers, Inc. (IBKR)

Date Written: June 1, 1994

Abstract

Optimal dynamic limit and market order submission and resubmission strategies are derived for several stylized trading problems. Separate solutions are obtained for quote- and order-driven markets. The results provide practical rules for how to trade small orders and how to manage traders. Transaction cost measurement methods based on implementation shortfall are proven to dominate other methods. Since investors demand liquidity when they submit market orders and supply liquidity when they submit limit orders, the results improve our understanding of market liquidity. In particular, the models illustrate the role of time in the search for liquidity by characterizing the demand for and supply of immediacy.

JEL Classification: G14, G24

Suggested Citation

Harris, Lawrence, Optimal Dynamic Order Submission Strategies in Some Stylized Trading Problems (June 1, 1994). Available at SSRN: https://ssrn.com/abstract=5514

Lawrence Harris (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6496 (Phone)
213-740-6650 (Fax)

Institute for Quantitative Research in Finance (the Q-Group) ( email )

Q Group
P.O. Box 1540
Valley Stream, NY 11582
United States

HOME PAGE: http://www.q-group.org

Financial Economists Roundtable ( email )

United States
3232441154 (Phone)

HOME PAGE: http://www.financialeconomistsroundtable.com/

Interactive Brokers, Inc. (IBKR) ( email )

209 South LaSalle Street
10th Floor
Chicago, IL 60604
United States

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