There are several papers (and authors) that are referenced again and again in the algorithmic trading literature. 1st – the ‘mother’ of most papers in algo trading:

• Robert Almgren and Neil Chriss. Optimal execution of portfolio transactions. J. Risk, 3(2):5–39, 2000.

This paper in particular is referenced by just about *every* paper on algorithmic trading. In this paper the generalized model for arrival price algorithms is related to the reader. This paper itself also does reference an earlier and oft referenced paper worth mentioning:

• Bertsimas and Lo (1998). Optimal control of liquidation costs. J. Financial Markets

The second most important paper referenced constantly is:

• Optimal Trading Strategy and Supply/Demand Dynamics Anna Obizhaeva and Jiang Wang

This paper is also fantastic, referencing the work of Almgren and Chriss and talking more about limit order books and such.

Next there are several worth getting to – listed in my preferred order:

• Bayesian Adaptive Trading with a Daily Cycle Robert Almgren? and Julian Lorenz
• Understanding the Profit and Loss Distribution of Trading Algorithms Robert Kissell 2005
• The Expanded Implementation Shortfall: “Understanding Transaction Cost Components” Robert Kissell May 2006

There are dozens more, and I would point the interested reader to these ‘less than seminal’ yet educational papers in the area of algo trading:

• Statistical properties of stock order books: empirical results and models Jean-Philippe Bouchaud, Marc M ?ezard, Marc Potters February 6, 2008
• Order Aggressiveness in Limit Order Book Markets Angelo Ranaldo* UBS Global Asset Management
• Optimal Trading in a Dynamic Market Robert Almgren? June 30, 2009
• Optimal Execution with Nonlinear Impact Functions and Trading-Enhanced Risk Robert F. Almgren? October 2001
• Optimal execution strategies in limit order books with general shape functions Aur ?elien Alfonsi?, Alexander Schied? 2007
• Algorithmic Trade Execution and Market Impact Richard Coggins†, Marcus Lim‡, Kevin Lo 2006

I have been reading, re-reading and re-reading these (and more) over and over – all great stuff for anyone interested in algo trading.

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