Trading Lightly: Cross-Impact and Optimal Portfolio Execution

Iacopo Mastromatteo, Michael Benzaquen, Zoltan Eisler and Jean-Philippe Bouchaud

Papers from arXiv.org

Abstract: 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.

Date: 2017-02, Revised 2017-08
New Economics Papers: this item is included in nep-mst
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