Optimal execution of portfolio trades

Many trading strategies in current markets involve simultaneous purchases and/or sales of multiple securities, where the combined transaction must satisfy a prescribed price objective. We refer to such trades as portfolio trades. Examples include pairs trading, buy-writes, basket trades, index trades, equity-currency trades, and swaps. More general extensions involve an arbitrary set of linked trades across multiple securities types. Current techniques for implementing portfolio trades are inefficient and carry a high risk of excessive market impact. We describe a direct approach to portfolio trading that simultaneously optimizes the trade prices and executes the trades. While the approach described herein is in the context of securities trading, it applies as well to other linked trading applications involving non-securities goods and services.