Price Impact on Term Structure

Damiano Brigo, Federico Graceffa and Eyal Neuman

Papers from arXiv.org

Abstract: We introduce a first theory of price impact in presence of an interest-rates term structure. We explain how one can formulate instantaneous and transient price impact on bonds with different maturities, including a cross price impact that is endogenous to the term structure. We connect the introduced impact to classic no-arbitrage theory for interest rate markets, showing that impact can be embedded in the pricing measure and that no-arbitrage can be preserved. We present pricing examples in presence of price impact and numerical examples of how impact changes the shape of the term structure. Finally, to show that our approach is applicable we solve an optimal execution problem in interest rate markets with the type of price impact we developed in the paper.

Date: 2020-11, Revised 2021-09
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2011.10113 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2011.10113

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().