A characterisation of cross-impact kernels

Mathieu Rosenbaum and Mehdi Tomas

Papers from arXiv.org

Abstract: 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 purposes. We focus on kernels that guarantee that prices are martingales and anticipate future order flow (martingale-admissible kernels) and those that ensure there is no possible price manipulation (no-statistical-arbitrage-admissible kernels). We determine the overlap between these two classes and provide formulas for calibration of cross-impact kernels on data. We illustrate our results using SP500 futures data.

Date: 2021-07
New Economics Papers: this item is included in nep-mst
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