On page 131 of book 6 they talk about a risk rebalance trade which is done over time where the market risk is balanced from holding long and short positions (immunized).
They choose a TWAP which I get. But could they have chosen VWAP as well instead?
Thanks anybody
The biggest difference between VWAP and TWAP is that VWAP trades based on volume, whereas TWAP trades based on time alone. In general, we use VWAP when we want to avoid the risk of the algorithm trading based on skewed volumes as input (e.g. sudden spike in volume outside of the morning and afternoon peak window). In this particular example, the book specifies that the volume is available to support the trade, and thus VWAP/TWAP should not be an issue, again in this particular example. My opinion is that the book merely uses TWAP as to emphasize the need to carry the trade in a gradual manner. As you might expect, TWAP tends to be more uniform than VWAP as TWAP does not take into account sudden spikes in volatility.
Volume, perhaps?
Volume* - thanks for the correction! 