Related papers: Impact is not just volatility
Latent order book models have allowed for significant progress in our understanding of price formation in financial markets. In particular they are able to reproduce a number of stylized facts, such as the square-root impact law. An…
This article provides a simple explanation of the asymptotic concavity of the price impact of a meta-order via the microstructural properties of the market. This explanation is made more precise by a model in which the local relationship…
In this paper, we assume that the permanent market impact of metaorders is linear and that the price is a martingale. Those two hypotheses enable us to derive the evolution of the price from the dynamics of the flow of market orders. For…
This paper deals with a fundamental subject that has seldom been addressed in recent years, that of market impact in the options market. Our analysis is based on a proprietary database of metaorders-large orders that are split into smaller…
We respond to the issues discussed by Farmer and Lillo (FL) related to our proposed approach to understanding the origin of power-law distributions in stock price fluctuations. First, we extend our previous analysis to 1000 US stocks and…
It is known that the impact of transactions on stock price (market impact) is a concave function of the size of the order, but there exists little quantitative theory that suggests why this is so. I develop a quantitative theory for the…
We propose a microstructural model for the order flow in financial markets that distinguishes between {\it core orders} and {\it reaction flow}, both modeled as Hawkes processes. This model has a natural scaling limit that reconciles a…
Financial markets convert the incremental arrival of information into asset price changes. In a sandpile model grains of sand represent bits of data, and the size of an avalanche, governed by a scaling law, is linked to price volatility.…
Single index financial market models cannot account for the empirically observed complex interactions between shares in a market. We describe a multi-share financial market model and compare characteristics of the volatility, that is the…
Universal power laws have been scrutinised in physics and beyond, and a long-standing debate exists in econophysics regarding the strict universality of the nonlinear price impact, commonly referred to as the square-root law (SRL). The SRL…
First, we give an asymptotic expansion of short-dated at-the-money implied volatility that refines the preceding works and proves in particular that non-rough volatility models are inconsistent to a power law of volatility skew. Second, we…
Small-scale mechanical behaviour shows significant departures from classical elastic-plastic theory. In a remarkable number of instances, the strength of a material appears to scale as the reciprocal square root of the smallest length…
The concepts of scale invariance, self-similarity and scaling have been fruitfully applied to the study of price fluctuations in financial markets. After a brief review of the properties of stable Levy distributions and their applications…
We discuss several models in order to shed light on the origin of power-law distributions and power-law correlations in financial time series. From an empirical point of view, the exponents describing the tails of the price increments…
The price impact for a single trade is estimated by the immediate response on an event time scale, i.e., the immediate change of midpoint prices before and after a trade. We work out the price impacts across a correlated financial market.…
The impact of trades on asset prices is a crucial aspect of market dynamics for academics, regulators and practitioners alike. Recently, universal and highly nonlinear master curves were observed for price impacts aggregated on all…
Understanding the structure of financial markets deals with suitably determining the functional relation between financial variables. In this respect, important variables are the trading activity, defined here as the number of trades $N$,…
It is now well established empirically that financial price changes are distributed according to a power law, with cubic exponent. This is a fascinating regularity, as it holds for various classes of securities, on various markets, and on…
In practice daily volatility of portfolio returns is transformed to longer holding periods by multiplying by the square-root of time which assumes that returns are not serially correlated. Under this assumption this procedure of scaling can…
How and why stock prices move is a centuries-old question still not answered conclusively. More recently, attention shifted to higher frequencies, where trades are processed piecewise across different timescales. Here we reveal that price…