Research On Shanghai - Shenzhen 300 Stock Index Futures Based On VWAP Model

We should keep up with the international development, draw on international financial transactions advanced tools, strategies, and tools in our financial products trading along with the deepening openness of our financial sector and financial innovation.Algorithmic trading have been widely used in foreign financial markets and it have achieved good trading results. This paper discusses the application of algorithmic trading in Shanghai and Shenzhen 300 stock index futures in our country. The main study is whether VWAP can reducing transaction costs in Shanghai and Shenzhen 300 stock index futures. Also we can improve the algorithmic trading. To achieve the purpose, the paper selected the real transaction data of Shanghai and Shenzhen 300 stock index futures from November 7, 2012 to March 27, 2015.We will study the transaction costs in three different situations: using VWAP, no using VWAP and using improved VWAP.Comparing the Shanghai and Shenzhen 300 stock index futures market with algorithmic traders with the market without algorithmic traders, this paper finds that average transaction costs of market with VWAP much less than the market without VWAP showing VWAP indeed able to reduce the transaction costs and control the trading risk for the investors in the futures market. VWAP algorithm not only reduces the average transaction cost of the investors, but also ensures a more stable market for the smaller difference of maximum and minimum and smaller standard deviation.The paper improves VWAP to forecast the distribution of one day’s trading volume by using the simple exponential smoothing. The weight becomes greater along the forecast date approaching of considering the impact of the time interval. It’s average transaction costs of market with improved VWAP much less than the market with VWAP showing improved VWAP indeed able to reduce the transaction costs and control the trading risk for the investors in the futures market. Improved VWAP algorithm not only reduces the average transaction cost of the investors, but also ensures a more stable market for the smaller difference of maximum and minimum and smaller standard deviation.VWAP is able to reduce the transaction costs in the Shanghai and Shenzhen 300 stock index futures market. And improved VWAP can be reduce the transaction costs more significantly and enhance the stability of the transaction.