Exponential Resilience and Decay of Market Impact

ECONOPHYSICS OF ORDER-DRIVEN MARKET, F. Abergel, B.K. Chakrabarti, A. Chakraborti, M. Mitra, eds., pp. 225-236, Springer, 2011

12 Pages Posted: 1 Aug 2010 Last revised: 13 Feb 2011

See all articles by Jim Gatheral

Jim Gatheral

CUNY Baruch College

Alexander Schied

University of Waterloo

Alla Slynko

Technische Universität München (TUM)

Abstract

Assuming a particular price process, it was shown by Gatheral that a model that combines nonlinear price impact with exponential decay of market impact admits price manipulation, an undesirable feature that should lead to rejection of the model. Subsequently, Alfonsi and Schied proved that their model of the order book which has nonlinear market impact and exponential resilience, is free of price manipulation. In this paper, we show how these at-first-sight incompatible results are in reality perfectly compatible.

Keywords: Order books, price manipulation, exponential resilience

Suggested Citation

Gatheral, Jim and Schied, Alexander and Slynko, Alla, Exponential Resilience and Decay of Market Impact. ECONOPHYSICS OF ORDER-DRIVEN MARKET, F. Abergel, B.K. Chakrabarti, A. Chakraborti, M. Mitra, eds., pp. 225-236, Springer, 2011, Available at SSRN: https://ssrn.com/abstract=1650937

Jim Gatheral (Contact Author)

CUNY Baruch College ( email )

Department of Mathematics
One Bernard Baruch Way
New York, NY 10010
United States

Alexander Schied

University of Waterloo ( email )

200 University Ave W
Waterloo, Ontario
Canada

Alla Slynko

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

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