2017/02/13 by Mastromatteo, Iacopo, Benzaquen, Michael, Eisler, Zoltan +1 · 1 citation
#FOS: Economics and business #Trading and Market Microstructure (q-fin.TR)
paper · doi:10.48550/arxiv.1702.03838
We model the impact costs of a strategy that trades a basket of correlated instruments, by extending to the multivariate case the linear propagator model previously used for single instruments. Our specification allows us to calibrate a cost model that is free of arbitrage and price manipulation. We illustrate our results using a pool of US stocks and show that neglecting cross-impact effects leads to an incorrect estimation of the liquidity and suboptimal execution strategies. We show in particular the importance of synchronizing the execution of correlated contracts.