Where Risk Control Meets Cost Control in Analytics Development

Abstract

In a portfolio transition, cost-minimizing trading strategies may have the unintended consequence of increasing risk along several dimensions. On the other hand, strategies designed to mitigate risk can involve unacceptable levels of cost, may be sub-optimal once transaction costs are taken into account, or may simply be infeasible. We suggest that a structured program of measurement, analysis, and control in trading applications involves the convergence of execution tools and portfolio management analytics and techniques. This convergence is a natural result of balancing multiple objectives throughout the trading process.