Dynamical Models of Market Impact and Algorithms for Order Execution

HANDBOOK ON SYSTEMIC RISK, Jean-Pierre Fouque, Joseph A. Langsam, eds., pp. 579-599, Cambridge, 2013

23 Pages Posted: 5 Apr 2012 Last revised: 4 Sep 2013

Jim Gatheral

CUNY Baruch College

Alexander Schied

University of Mannheim

Date Written: January 24, 2013

Abstract

In this review article, we present recent work on the regularity of dynamical market impact models and their associated optimal order execution strategies. In particular, we address the question of the stability and existence of optimal strategies, showing that in a large class of models, there is price manipulation and no well-behaved optimal order execution strategy. We also address issues arising from the use of dark pools and predatory trading.

Keywords: Market impact model, optimal order execution, algorithmic trading, price manipulation, transaction-triggered price manipulation

Suggested Citation

Gatheral, Jim and Schied, Alexander, Dynamical Models of Market Impact and Algorithms for Order Execution (January 24, 2013). HANDBOOK ON SYSTEMIC RISK, Jean-Pierre Fouque, Joseph A. Langsam, eds., pp. 579-599, Cambridge, 2013. Available at SSRN: https://ssrn.com/abstract=2034178 or http://dx.doi.org/10.2139/ssrn.2034178

Jim Gatheral

CUNY Baruch College ( email )

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

Alexander Schied (Contact Author)

University of Mannheim ( email )

Department of Mathematics
A 5, 6
Mannheim, 68131
Germany
+49-621-181-2513 (Phone)

HOME PAGE: http://www.alexschied.de/

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