Related papers: Cross impact in derivative markets

Trading pressure from one asset can move the price of another, a phenomenon referred to as cross impact. Using tick-by-tick data spanning 5 years for 500 assets listed in the United States, we identify the features that make cross-impact…

Trading a financial instrument pushes its price and those of other assets, a phenomenon known as cross-impact. To be of use, cross-impact models must fit data and be well-behaved so they can be applied in applications such as optimal…

Trading a financial asset pushes its price as well as the prices of other assets, a phenomenon known as cross-impact. We consider a general class of kernel-based cross-impact models and investigate suitable parameterisations for trading…

In a financial exchange, market impact is a measure of the price change of an asset following a transaction. This is an important element of market microstructure, which determines the behaviour of the market following a trade. In this…

The vast majority of market impact studies assess each product individually, and the interactions between the different order flows are disregarded. This strong approximation may lead to an underestimation of trading costs and possible…

In illiquid markets, option traders may have an incentive to increase their portfolio value by using their impact on the dynamics of the underlying. We provide a mathematical framework within which to value derivatives under market impact…

In the over-the-counter market in derivatives, we sometimes see large numbers of traders taking the same position and risk. When there is this kind of concentration in the market, the position impacts the pricings of all other derivatives…

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…

Dealers in foreign exchange markets provide bid and ask prices to their clients at which they are happy to buy and sell, respectively. To manage risk, dealers can skew their quotes and hedge in the interbank market. Hedging offers certainty…

Traders constantly consider the price impact associated with changing their positions. This paper seeks to understand how price impact emerges from the quoting strategies of market makers. To this end, market making is modeled as a dynamic…

This paper develops a model for option market making in which the hedging activity of the market maker generates price impact on the underlying asset. The option order flow is modeled by Cox processes, with intensities depending on the…

We solve in closed-form an equilibrium model in which a finite number of exponential investors continuously consume and trade with price-impact. Compared to the analogous Pareto-efficient equilibrium model, price-impact has an amplification…

We investigate the problem of pricing and hedging derivatives of Electricity Futures contract when the underlying asset is not available. We propose to use a cross hedging strategy based on the Futures contract covering the larger delivery…

We extend the "No-dynamic-arbitrage and market impact"-framework of Jim Gatheral [Quantitative Finance, 10(7): 749-759 (2010)] to the multi-dimensional case where trading in one asset has a cross-impact on the price of other assets. From…

Model risk measures consequences of choosing a model in a class of possible alternatives. We find analytical and simulated bounds for payoff functions on classes of plausible alternatives of a given discrete model. We measure the impact of…

In this article, we analyze two modeling approaches for the pricing of derivative contracts on a commodity index. The first one is a microscopic approach, where the components of the index are modeled individually, and the index price is…

We investigate the impact of order flow imbalance (OFI) on price movements in equity markets in a multi-asset setting. First, we propose a systematic approach for combining OFIs at the top levels of the limit order book into an integrated…

This paper examines the possibility of using derivative-implied risk premia to explain stock returns. The rapid development of derivative markets has led to the possibility of trading various kinds of risks, such as credit and interest rate…

In this paper we present a theoretical framework for determining dynamic ask and bid prices of derivatives using the theory of dynamic coherent acceptability indices in discrete time. We prove a version of the First Fundamental Theorem of…

Estimating market impact and transaction costs of large trades (metaorders) is a very important topic in finance. However, using models of price and trade based on public market data provide average price trajectories which are…