Usage
  • 135 views
  • 119 downloads

Optimal Benchmarks from a Trader's Perspective

  • Author / Creator
    Mitra, Joshua
  • The problem of benchmarking in financial markets is an important one. It could be a mutual fund looking to meet its cash inflows and outflows or a brokerage that has been contracted a benchmark price. There is also often incentive to manipulate benchmark. We introduce a discrete-time market model to analyze the trade-off between attainability of a benchmark and its resistance to manipulation. In our setting with a single asset and temporary price impact, an honest trader tries to minimize the costs and deviation to the benchmark while a manipulator pushes the benchmark price up. The resulting optimal benchmark is very similar to the VWAP (volume weighted average price) in that prices are weighted by traded volumes. We find another VWAP-like benchmark in a market that includes an auction with an imbalance announcement that has a permanent price impact.

  • Subjects / Keywords
  • Graduation date
    Fall 2019
  • Type of Item
    Thesis
  • Degree
    Master of Science
  • DOI
    https://doi.org/10.7939/r3-h0pr-2k64
  • License
    Permission is hereby granted to the University of Alberta Libraries to reproduce single copies of this thesis and to lend or sell such copies for private, scholarly or scientific research purposes only. Where the thesis is converted to, or otherwise made available in digital form, the University of Alberta will advise potential users of the thesis of these terms. The author reserves all other publication and other rights in association with the copyright in the thesis and, except as herein before provided, neither the thesis nor any substantial portion thereof may be printed or otherwise reproduced in any material form whatsoever without the author's prior written permission.