Model resolves asset pricing puzzles with price-impact.
problem Asset pricing puzzles like interest rate, stock-price volatility, and equity premium.
method Closed-form equilibrium model with exponential investors trading continuously and experiencing price-impact.
result Price-impact amplifies risk-sharing distortions, resolving puzzles.
Study liquidity impact on spread option pricing.
problem Imperfect liquidity in stock markets affects option pricing.
method Developed partial-impact and full-impact models to analyze European spread options.
result Full impact model leads to higher option prices due to increased stock buying.
Study utility indifference pricing in a Bachelier model with small linear price impact.
problem Utility indifference pricing in a model with linear price impact.
method Analyzes the Bachelier model with exponential utility indifference prices for vanilla European options.
result Computes the scaling limit of utility indifference prices for a vanishing price impact inversely proportional to risk aversion.
Modeling market makers' quoting strategies to understand price impact.
problem Understanding how price impact arises from market makers' quoting strategies.
method Modeling market making as a dynamic auction using Stochastic Differential Games and finding Nash Equilibrium.
result The price impact function derived from market makers' strategies matches the Almgren-Chriss model.
Paper examines costs of using wrong price impact models in trading.
problem Misspecifying price impact models in trading predictions.
method Derives formulas for misspecification costs and applies to trading data.
result Misspecification costs are asymmetric, affecting profits and losses.
Solves superhedging for European options in a model with transient price impact and settlement requirements.
problem Superhedging European options in a model with transient price impact and settlement requirements.
method Analyzes geometric dynamic programming with reduced effective coordinates, considering non-linear price impact and resilience functions.
result Viscosity solutions describe minimal superhedging prices, governed by transient price impact and settlement specifications.
Develops SPT with price impact, deriving formulas for wealth and arbitrage conditions.
problem Tackles price impact in high-dimensional markets.
method Incorporates nonlinear price impact and impact decay models.
result Derives master formula for trading strategies and wealth dynamics.
We analyze small price impacts in a multidimensional utility maximization problem using PDEs.
problem Small nonlinear price impacts in a multidimensional utility maximization problem.
method Asymptotic expansion using nonlinear PDEs related to ergodic control and linear parabolic PDEs.
result Leading order correction to the value function is characterized by a nonlinear second order PDE.
Linear models explain nonlinear price impacts and return dynamics.
problem Understanding the impact of trades on asset prices.
method Investigated linear propagator models to explain nonlinear price impact curves and return dynamics.
result A change indicator in addition to the order sign history explains price impact nonlinearities and short-term return dynamics.
Study optimal liquidation under high risk aversion and small price impact.
problem Optimal liquidation of options under high risk aversion and linear price impact.
method Analyzes Bachelier model with linear price impact, computes utility indifference prices, and finds asymptotically optimal portfolios.
result Establishes a scaling limit for vanishing price impact and computes corresponding utility indifference prices.
The paper examines how price impact influences optimal investment, demand, and arbitrage in a competitive market.
problem The impact of price impact on optimal investment, demand, and arbitrage in a competitive market.
method Analyzes the effects of price impact on optimal policies, pricing rules, and demand schedules for contingent claims.
result Price impact leads to constrained trading and non-linear hedging costs, affecting arbitrage opportunities and equilibrium positions.
Modeling cross-impacts between stocks with a two-component price impact model.
problem Understanding cross-impacts between stocks in a correlated market.
method Introducing self- and cross-impact functions, modeling average cross-response functions, fixing impact function parameters, and quantifying time lag impacts.
result Cross- and self-correlators are connected with cross-responses, and time lag impacts are divided into temporary and permanent components.
Measures price impact in order-driven markets without relying on averages.
problem Measuring price impact in order-driven markets without relying on averages.
method Modeling the limit order book using state-dependent Hawkes processes and defining price impact profile as a function of the compensator of a stochastic process.
result The clustering of sell child orders has a bigger impact on price than their sizes.
Model shows how price impact and transaction costs affect trading behavior and profits.
problem Analyzing trading behavior and profits in markets with transaction costs and price impact.
method Proves the existence of an equilibrium in a model with transaction costs and price impact.
result Existence of a strictly positive optimal transaction cost from the exchange's perspective.
Theory of price impact on bond term structure.
problem Understanding price impact in interest rate markets.
method Formulated instantaneous and transient price impact on bonds with different maturities, connecting to no-arbitrage theory.
result Price impact can be embedded in the pricing measure and no-arbitrage preserved.
The paper constructs optimal hedging strategies for options with price impact.
problem Optimal hedging strategies for options with temporary price impact.
method Combining analytic and probabilistic tools to establish feedback representation of the optimal strategy and derive utility indifference price.
result Explicit asymptotic expansion of utility indifference price quantifying price impact.
Study optimal trading strategies with small price impacts.
problem Optimal portfolio selection in a model with temporary and transient price impacts.
method Derive explicit formulas for asymptotically optimal trading rates and performance losses in the large-liquidity limit.
result Losses are governed by volatility of frictionless target strategy, but optimal portfolio exploits price displacement.
Investigates cross-impact kernels for financial asset prices.
problem Understanding and parameterizing cross-impact kernels for financial asset prices.
method Examined martingale-admissible and no-statistical-arbitrage-admissible kernels, determined their overlap, and provided calibration formulas.
result Identified the overlap between martingale-admissible and no-statistical-arbitrage-admissible kernels and provided formulas for their calibration.
ICON-OCnet solves optimal execution problems with neural networks and few examples.
problem Optimal order execution in markets with unknown price impact.
method Transformer-based neural network architecture (ICON-OCnet) that learns price impact from few examples and applies it to optimal execution strategies.
result ICON-OCnet accurately infers price impact models and retrieves optimal execution strategies for various propagator kernels.
Two models predict similar high-frequency price dynamics but differ in low-frequency impact strength.
problem Understanding the relationship between market prices and fundamental information.
method Comparing a microfounded linear model with a data-driven model at high and low frequencies.
result Both models predict similar high-frequency price dynamics but differ in low-frequency impact strength.
Power-law model outperforms logarithmic model in estimating stock and warrant price impacts.
problem Estimating immediate price impacts of stock and warrant orders.
method Used order flow data to estimate price impacts using power-law and logarithmic models.
result Power-law model outperforms logarithmic model in robustness and forecasting accuracy.
Study finds price impact is universal in anonymous markets.
problem Understanding price impact in anonymous electronic markets.
method Analysis of proprietary dataset and linear propagator model.
result Magnitude and time dependence of price impact are universal in anonymous markets.
Scaling limits for super-replication costs in models with transient price impact.
problem Analyzing the cost of options in models with transient price impact.
method Proving a scaling limit theorem using a Cox--Ross--Rubinstein binomial model.
result The scaling limit coincides with PDE methods for purely temporary price impact models, expanding to path-dependent options.
The study explains the concavity of price impact in markets.
problem The asymptotic concavity of price impact in meta-orders.
method A model with linear local price impact and co-directional trades.
result Volumes at best bid and ask prices favor the executor.
Study shows integrating OFI from multiple levels improves price impact explanation but not forecasting.
problem Explaining and forecasting price movements in equity markets using OFI.
method Systematic approach to combine OFIs from multiple levels into an integrated variable, testing multi-asset models with and without cross-impact terms.
result Lagged cross-asset OFIs improve future return forecasting but not contemporaneous price impact.
Model predicts trading strategies based on latent demand and price impact.
problem Predicting strategic trading behavior of investors with private targets.
method Equilibrium model of dynamic trading, learning, and pricing by strategic investors.
result Trading strategies are a combination of target following, liquidity provision, and front-running based on latent demand and price pressure.
Modeling option market making with hedging-induced price impact.
problem Tackles the challenge of market making in options markets with price impact.
method Models option order flow using Cox processes and studies the dynamics of inventory and price under hedging-induced impact.
result Establishes the well-posedness of the mixed control problem involving quoting and hedging.
New model explains why metaorder impact estimation is hard with public data.
problem Difficulty in estimating metaorder impact using public market data.
method Proposed a modified Transient Impact Model to better describe order flow.
result Model shows market impact can be permanent under certain conditions.
We define what "Price Impact" means, and how it is measured and modelled in the recent literature. Although this notion seems to convey the idea of a forceful and intuitive mechanism, we discuss why things might not be that simple. Empirical studies show that while the correlation between signed order flow and price ch…
New data improves market impact estimation methods.
problem Improving efficiency of market impact estimation.
method Investigates the use of price trajectory data for market impact estimation.
result Estimation methods using early trade prices outperform established methods asymptotically.
Develops optimal liquidation strategies with stochastic price impact.
problem Optimal liquidation under price impact with stochastic parameters.
method Coefficient expansion on Hamilton-Jacobi-Bellman equation, solving PDEs for value function and optimal strategy.
result Closed-form approximations to value function and optimal liquidation strategy.
The common wisdom argues that, in general, large trades cause large price changes, while small trades cause small price changes. However, for extremely large price changes, the trade size and news play a minor role, while the liquidity (especially price gaps on the limit order book) is a more influencing factor. Hence,…
We propose a minimal theory of non-linear price impact based on a linear (latent) order book approximation, inspired by diffusion-reaction models and general arguments. Our framework allows one to compute the average price trajectory in the presence of a meta-order, that consistently generalizes previously proposed pro…
Estimates cross-impact on derivatives markets using E-Mini futures and options.
problem Empirical estimation of cross-impact on complex financial instruments like derivatives.
method Modeling derivatives prices as a function of stochastic factors and trades on both factors and derivatives.
result Simple framework successfully captures cross-impact on derivatives markets.
We introduce a multivariate Hawkes process that accounts for the dynamics of market prices through the impact of market order arrivals at microstructural level. Our model is a point process mainly characterized by 4 kernels associated with respectively the trade arrival self-excitation, the price changes mean reversion…
Market impact is a key concept in the study of financial markets and several models have been proposed in the literature so far. The Transient Impact Model (TIM) posits that the price at high frequency time scales is a linear combination of the signs of the past executed market orders, weighted by a so-called propagato…
Silkswap models stablecoin trading with minimal price impact.
problem Efficient trading of fiat-pegged stablecoins with minimal price impact.
method Silkswap uses an invariant price impact curve for asymmetric trading, derived from a hybrid function.
result Silkswap outperforms Curve Finance in price impact for stablecoin trading.
Modeling equity market impact with Chinese data, improving on existing models.
problem Understanding and quantifying market impact in Chinese equity markets.
method Developed a price impact model considering heteroscedasticity and dependency between permanent and temporary impacts using large tick data.
result The model outperforms existing models and suggests a constant impact exponent of around 0.7 across all stocks.
Study Nash equilibria for risk-averse investors in a market with transient price impact.
problem Optimizing costs or maximizing expected utility for risk-averse agents in a market with transient price impact.
method Explicit representations and numerical analysis of Nash equilibria for mean-variance optimization and expected exponential utility maximization.
result Explicit representations and uniqueness of Nash equilibria for mean-variance optimization.
The asymmetric price impact between the institutional purchases and sales of 32 liquid stocks in Chinese stock markets in year 2003 is carefully studied. We analyze the price impact in both drawup and drawdown trends with consecutive positive and negative daily price changes, and test the dependence of the price impact…
Paper studies optimal execution in a multi-investor model with price impact.
problem Optimal execution in a multi-investor model with transient price impact.
method Established existence and uniqueness of Nash equilibrium under quadratic transaction costs. Derived closed-form representation for exponential decay kernels.
result Order anticipation strategies increase execution costs but do not cause price overshooting.
Estimates price impacts and finds asymmetric market structures.
problem Understanding asymmetric price impacts in financial markets.
method Quantifies price impacts using spectral statistics and Shannon entropy.
result Asymmetric and non-random price impacts across the market.
Develops a framework for valuing Asian options with market impact.
problem Valuation of Asian options under price impact.
method Discrete-time quote-level model, continuous-time limits, Hamilton-Jacobi-Bellman equations, CRR-style tree-based Bellman algorithm.
result Endogenous trading volumes feed into prices and costs, leading to nontrivial bid-ask spreads.
Optimal trading strategy derived for nonlinear price impact models.
problem Optimal trading with nonlinear price impact induced by alpha signals.
method Variational approach, nonlinear Fredholm equation, iterative scheme.
result Existence and uniqueness of optimal trading strategy under monotonicity condition.
Optimal trading strategy with Poisson process times and price impact.
problem Maximizing net present value in algorithm trading with multiplicative price impact.
method Modelled optimal strategy with Poisson inter-selling times and barrier form.
result An optimal strategy has a barrier form depending on remaining shares and asset price.
For a market impact model, price manipulation and related notions play a role that is similar to the role of arbitrage in a derivatives pricing model. Here, we give a systematic investigation into such regularity issues when orders can be executed both at a traditional exchange and in a dark pool. To this end, we focus…
Study shows price impact increases with order-flow imbalance, using machine learning.
problem Understanding price impact in financial markets.
method Empirical investigation using Kyle's model and machine learning.
result Machine learning models can predict market impact more accurately than traditional methods.
Study optimal liquidation strategies on Uniswap v2/v3 considering price impact.
problem Optimal liquidation of large positions on Uniswap v2/v3 under transient price impact.
method Dynamic programming and numerical approximation for Uniswap v3, closed-form solutions for v2.
result Obtained optimal strategies for both Uniswap v2 and v3, showing how liquidity profile influences them.