The basket comprises NYMEX Crude, ICE Coffee, CME Lumber, NYMEX Silver, NYMEX Palladium, CBOT 10 Year, CBOT Soybean, KCB Wheat, ICE Cocoa and NYMEX Heating Oil. The trade timeline is from 8.00 AM to 3.15 PM (all times in U.S. EST). Certain contracts will finish earlier if their primary session closes before 3:15.
The trade for NYMEX Crude is a sell order for 8,520 contracts of the July 2011 expiration that must be completed within the context of the basket's risk constraint of balanced execution with a maximum 3% deviation in percentage execution.
The Asset: NYMEX Crude Oil July 2011 expiration.
The Challenge: To sell 8,520 contracts of NYMEX Crude Oil July 2011. The user benchmark to be used is VWAP and all orders will be market orders with a maximum volume participation constraint.
The Trader: The trader heads the CTA's trading desk and handles all energy complex orders. He opts for a multifactor sensitive algorithm specifically intended for futures with which to execute the crude trade.
The Algo: The algorithm is a multifactor sensitive algorithm for futures that looks at factors that contribute to execution cost (including Liquidity, Bid-Ask Spread, and Volatility) and applies appropriate weights to the factors for a specific futures contract. The algorithm uses a dynamic execution profile and adjusts for expected volatility, liquidity and spread over the specified trading period to achieve execution superior to VWAP. The algorithm is recommended for trades with low alpha decay, or uncertain volatility or volume profile.