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Questions tagged [transaction-costs]

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147 views

Bid-Ask spread in Roll's model: Negative autocovariance of returns and informational content

Currently studying on techniques to estimate the bid-ask spread. Perhaps the most widely known model is the Roll model (1984). Let $P_t$ indicate log prices $\begin{cases} Bid_t=P_t-c, \\ ...
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0answers
32 views

forex backtesting spread cost modeling

For professional level forex trading, what is a reasonable estimate of roundtrip transaction costs (I am talking about major pairs, like EUR/USD).
2
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1answer
109 views

Portfolio optimization with non-linear cost

I am trying to solve a mean-variance problem with a non-linear market impact cost term in there. This is the problem I am trying to solve $$ \max_x \left ( \alpha x - \gamma x' \Sigma x - a\sqrt{|x-...
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1answer
47 views

Smart transaction cost model (for spread contracts)

In futures there exist exchange traded calendar spread contracts, which trade as a single unit (think May/June Crude Oil). The bid ask spread for the spread contracts is the same as that of the ...
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0answers
50 views

Excessive trading due to sharp cutoffs

I am running a stock trading system based on traditional factors (value, momentum, etc). I generate a combined factor score for each stock on every day at the close, and at the open of the next day, I ...
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0answers
54 views

Simplest portfolio optmization under transaction costs

I've been studying portfolio optimization trying to go step by step. After seeing much of Markowitz and Merton's work (Although I still don't get all of it), I would like to have acquire more ...
3
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1answer
158 views

Payoff of European Call Option with Transactioncosts

I was wondering about the following scenario: assume that you have a underlying which trades under a positive bid-ask spread $S^B \leq S^A$ and that there is also a European Call-Option on this ...
2
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1answer
223 views

Out-of-sample performance

I got a problem when calculating the out-of-sample performance of my model. I have the following settings: I have daily data. I use a rolling window of 1 week. I use the previous six months of data ...
3
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1answer
1k views

Portfolio optimization subject to transaction costs

Mean-Variance portfolio optimization attracted lots of attention in this forum so far. I am interested in the effect of incorporating transaction costs into the decision framework and I would like to ...
4
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1answer
178 views

How large are transaction costs in practice?

I am wondering, what kind of transaction costs practitioners (institutional investors) are faced to. Portfolio optimization literature often evaluates portfolio performance after adjusting for a value ...
4
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1answer
154 views

Does financial transaction tax (FFT) debilitate high frequency trading?

In Taiwan there is a FFT of 0.3% on equity sell, and coincidentally HFT seemed to be non-existent in Taiwan market. HFT features high volumes of trades, does the tax make HFT infeasible?
5
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2answers
166 views

Modeling transaction cost with single-counted turnover ratio

Why do people use "Single-Counted" turnover ratio when modeling for transaction cost. I read a paper (Factor Investing in the Corporate Bond Market) which uses only the purchase side as turnover ...
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0answers
128 views

What are commercial impact models and transaction cost analysis models out there for simulation?

I have heard that ITG, LiquidMetrix, MarkIT and TradingScreen has good Transaction Cost Analysis (TCA) research. I wonder which firm one would choose to have an impact model formula inside his ...
2
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2answers
213 views

When to adjust portfolio weights?

In portfolio allocation literature there is lot of effort made in obtaining 'better' portfolio weights, for example via improving parameter estimates, introducing Bayesian approaches, incorporating ...
2
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1answer
771 views

Transaction costs on option trades

It looks like the commissions alone for a non-index option trade is around 2-5%. For example, a BAC June ATM Call is currently trading at \$0.20; Interactive Brokers charges $0.7 per contract, which ...
2
votes
1answer
378 views

Intraday versus daily volatility in slippage estimation

On page 21 of http://www.cims.nyu.edu/~almgren/papers/costestim.pdf Almgren has the formula $\displaystyle{\text{Slippage} = \frac{1}{2}\gamma\sigma\frac{X}{V}\left(\frac{\Theta}{V}\right)^{\frac{1}{...
6
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2answers
125 views

How to properly assess the costs of replicating an index via futures contracts?

I would like to validate this sentence, coming from a WSJ article: The cost of holding a Eurostoxx 50 future, for example, has climbed from an average of 0.07% of the contract value since 1998, ...
0
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1answer
46 views

Transaction Costs Measure ATOP: What does it mean and exactly measure?

I went through some presentations about LowVol strategies for some indices. In the presentations were tables with average returns, vola, Sharp ratio and ATOP. I have no clue what this ATOP is supposed ...
3
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1answer
584 views

formulating MVO with costs

I am trying to formulate this simple MVO utility function with a linear transaction cost penalty added using Quadprog in MATLAB tcost = 0.001; lambda = 4; mu = vector of expected returns (say 4x1) S ...
2
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1answer
620 views

How low can HFT transaction costs go?

When evaluating an HFT strategy, transaction costs are clearly an important question. When looking at commercial discount brokers for retail clients, costs can be as low as 0.005 USD per share, but ...
7
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3answers
708 views

Transaction Costs for Currency Pairs

I have been aggregating some tick data from Oanda's streaming API to try and get an idea of the relative cost and best time to trade different currency pairs. The idea was to plot the spread of the ...
0
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1answer
92 views

Liquidity and Prices

Do fewer transaction costs and higher liquidity relate to lower market prices? Are there any good resources that deal with these topics in more detail?
3
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1answer
545 views

Magnitude of Transaction Cost for Institutional Investors

For my thesis, I'm writing about robust portfolio allocation. I have the idea to include a measure of transaction cost, since ignoring them seems too simplifying for a real-world problem. Comparing a ...
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1answer
215 views

Add transaction costs to prediction

An algorithm predicts price movement by some certainty and it invests proportional to the confidence level. Predictions range from -1 to +1, -1 meaning sell for a value of ...
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3answers
2k views

how do you evaluate an FX market EMS?

My firm is investigating FX EMS systems to see if we can reduce execution costs for our trading strategies that involve FX (not low latency). The liquidity providers are a few major banks. We're ...
6
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4answers
4k views

Typical coefficients uses in square-root model for market impact

The square-root model is widely used to model equity market impact. It assumes that volatility, traded volume, total volume, and a spread cost are the drivers of slippage. Jim Gatheral has an ...
3
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0answers
271 views

Optimal Position Size with Transaction Costs given Forecast Mean and StDev

I have rather a challenging question. I'm hoping that someone can share their experience. I will build up the problem in steps. Let's start our thinking with the idea of a buy and hold strategy of ...
6
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4answers
4k views

How should I include the bid-ask spread as a transaction cost in a backtest?

I have two backtesting algorithms: One that uses bid and ask prices for signal generation. For example: Buy when $ask < threshold_1 $ and sell when $bid > threshold_2$. Bid and ask prices are ...
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3answers
2k views

How to account for transaction costs in a simulated market environment?

I am simulating a market for my trading system. I have no ask-bid prices in my dataset and use adjusted close for both buy and sell price. To account for this I plan to use a relative transaction cost....