COMMENTARY: Beyond the Black Box Revisited: Algorithmic Trading and TCA Analysis Using Excel

Abstract

In this paper we revisit techniques from “Creating Dynamic Pre-Trade Models: Beyond the Black Box” (Kissell, 2011) which was awarded The Journal of Trading’s Best Paper of the Year Award in 2011. We provide investors a pre-trade of pre-trade modeling technique that can be used to decipher broker and vendor models, and to calibrate a customized investor specific market impact model. We also provide a suite of Excel TCA Add-In functions that can incorporate investor specific market impact parameters and allow investors to perform TCA analysis on their own desktops within Excel, and with the added level of security and comfort that their investment decision process will not be reverse engineered because they do not need to upload or transmit any of their proprietary information and valuable trade information to a third-party website or API for analysis. Techniques in this paper enable investors to create their own customized TCA analyses within Excel to assist with both trading decisions and portfolio analysis and optimization.

TOPICS: Quantitative methods, statistical methods