2024/12/14 by Kolev, Simeon
Engineering · #Advanced Control Systems Optimization #FOS: Economics and business #Trading and Market Microstructure (q-fin.TR)
paper · pdf · doi:10.48550/arxiv.2412.10947
openalex publication_date 2024/12/14 · openalex created_date 2025/10/24 · openalex updated_date 2026/07/28
Bertsimas and Lo's seminal work established a foundational framework for\naddressing the implementation shortfall dilemma faced by large institutional\ninvestors. Their models emphasized the critical role of accurate knowledge of\nmarket microstructure and price/information dynamics in optimizing trades to\nminimize execution costs. However, this paper recognizes that perfect initial\nknowledge may not be a realistic assumption for new investors entering the\nmarket. Therefore, this study aims to bridge this gap by proposing an approach\nthat iteratively derives OLS estimates of the market parameters from period to\nperiod. This methodology enables uninformed investors to engage in the market\ndynamically, adjusting their strategies over time based on evolving estimates,\nthus offering a practical solution for navigating the complexities of execution\ncost optimization without perfect initial knowledge.\n