Title: Smart TWAP trading in continuous-time equilibria,
Abstract: This paper presents a continuous-time equilibrium model of TWAP trading and
liquidity provision in a market with multiple strategic investors with
heterogeneous intraday trading targets. We solve the model in closed-form and
show there are infinitely many equilibria. We compare the competitive
equilibrium with different non-price-taking equilibria. In addition, we show
intraday TWAP benchmarking reduces market liquidity relative to just terminal
trading targets alone. The model is computationally tractable, and we provide a
number of numerical illustrations. An extension to stochastic VWAP targets is
also provided.