arXiv Open Access 2020

Price impact equilibrium with transaction costs and TWAP trading

Eunjung Noh Kim Weston

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Abstrak

We prove the existence of an equilibrium in a model with transaction costs and price impact where two agents are incentivized to trade towards a target. The two types of frictions -- price impact and transaction costs -- lead the agents to two distinct changes in their optimal investment approach: price impact causes agents to continuously trade in smaller amounts, while transaction costs cause the agents to cease trading before the end of the trading period. As the agents lose wealth because of transaction costs, the exchange makes a profit. We prove the existence of a strictly positive optimal transaction cost from the exchange's perspective.

Topik & Kata Kunci

q-fin.MF q-fin.TR

Penulis (2)

Eunjung Noh

Kim Weston

Format Sitasi

APA MLA BibTeX

Noh, E., Weston, K. (2020). Price impact equilibrium with transaction costs and TWAP trading. https://arxiv.org/abs/2002.08286

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Informasi Jurnal

Tahun Terbit: 2020
Bahasa: en
Sumber Database: arXiv
Akses: Open Access ✓