When do you use TWAP over VWAP?

Can you use TWAP in trending volatile markets? Or do you use implementation shortfall or another method? Thanks.

vwap and twap good for NON trending market, and SMALL volume

but in the same time implementation shortfall is not suitable for volatile market!

but check this article, it states that IP. Shortfall does better in volatile markets (page 10)


don’t recall what the curriculum said.

market was NOT volatile. it was Trending

so if markets are not volatile but is trending you use Implementation Shortfall.

TWAP is used in volatile and low liquidity markets.

It is in the CFA text book page 45, TWAP is useful “whose volume patterns might be erratic.”

It is in the CFA text book page 45, TWAP is useful “whose volume patterns might be erratic.”

agree with you on that part, what if it is volatile and trending, then will you still use TWAP

trending you still use imp shortfall - it’s biased towards earlier execution to reduce delay costs and realized g/l

Also, I believe the order was a large, Im not sure if it was a large% of daily volume though. But that makes Imp-Shortfall a good candidate.

I thought imp shortfall works well in volatile markets? Its only drawbacks are that its unfamiliar/hard to interpret for some and labor intensive/requires alot of data an analysis?


Pg 47, paragraph 2 of cfai volume 6 mentions that implementation shortfall works well for to minimize opportunity costs, which are proxied by volatility. As a result IS works well for trending and volatile markets.

Implementation shortfall for the large volume of trading and concerns about costs. CPPI strategy for rebalancing of the portfolio.

nope, buy and hold. volatile markets would be bad for CPPI. you would buy and sell at the wrong times.

My thought on this one:

* Market is volatile, trending upward. The order is relatively large and It seems that the fund manager hv control with the timing and size of the CFs ( ie the manager has power over discretionary account)

If we use Imp-Shortfall, which stress on earlier execution. The execution costs( the market impacts) will be high as the large order went through in a short period of time in a volatile market. thus, i consider this strategy is not suitable.

Since the order is considered as large, which will dominate the daily trading volume ,therefore VWAP is not infomative and can be gamed.

so i go for TWAP…

anyone know how many points for this question?..coz i got 0 i think

I’m not sure. The CPPI strategy is not suitable when markets are reversing - i.e. fluctuating back/forth in a narrow price band. In the case the B&H strategy is also unfit - only Constant Mix. However, in volatile and trending upward markets the CPPI will outperform B&H since m>1 whereas for B&H m=1, and thus the convex nature of payoff. The client also stipulated a cushion in 170k dollars and something was said about her risk tolerance. I’m trying to find out the point.