5 votes
Accepted

Half of the bid-ask spread as transaction cost

The idea of assuming that the transaction cost is one half of the bid-offer spread comes from several assumptions: the positions are marked-to-market at mid; you can actually execute at bid or ask (...
4 votes
Accepted

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

I don't have much experience in the matter, but I've been doing some related literature research recently and I think these links can be helpful: A rather recent study from CME A (possible a bit ...
  • 56
4 votes
Accepted

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

This does not imply overestimation bias. We expect a negative autocorrelation in high- and ultra-high-frequency (every trade) data due to bid-ask bounce. Bounce occurs when buy and sell orders trading ...
  • 2,770
4 votes

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

A lot of designated liquidity providers/market maker are exempt from FTT as authorities rightly believe markets would become less liquid without them. So HFT trading firms just decide to call ...
  • 41
3 votes
Accepted

Payoff of European Call Option with Transactioncosts

First let's note that in practice exercise notice (of US equity options) is given after the end of the trading day, when we may have a bid and offer coming in for after-hours trading with very wide ...
  • 14.5k
3 votes

When to adjust portfolio weights?

I think generally there are two approaches: "calendar rebalancing" (such as monthly as you mention) and "optimal corridor width". For the first option, the danger is the portfolio could stray ...
  • 231
3 votes

How low can HFT transaction costs go?

Well the answer depends on what are you considering a fee? Do you included per trade regulatory fees or just exchange fees? Many exchanges will pay you for being the passive side of a trade, so ...
  • 1,349
2 votes
Accepted

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

I would say it could be short for annual turnover (precent/portfolio) Higher portfolio turnover often means higher transaction costs. The definition is usually the lesser of all buys and sells in a ...
  • 2,894
2 votes
Accepted

formulating MVO with costs

I'm not that familiar with MATLAB. However, in quadratic programming the main issue I've found is setting up the problem correctly and then the coding becomes much easier. As you noted this problem ...
  • 1,561
2 votes
Accepted

When to adjust portfolio weights?

vega captures the two most common solutions to this problem. There are some valid criticisms of corridors as well. Because assets are correlated within a portfolio the decision to trade a particular ...
  • 1,561
2 votes

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

The current contract value is roughly 30k euros. The bidask spread is 1 tick, which equals 10 euros. Lets say you buy the contract and roll 3 times a year and then liquidate your position at expiry. ...
2 votes

Transaction costs on option trades

Volatility is mostly an "institutional" trade. People who trade it have a seat on one of the exchanges so they do not pay broker commissions. On top OPRA still imposes its own fees, which can add up. ...
  • 326
2 votes

Portfolio optimization with non-linear cost

You're not going to be able to solve it with quadprog because $-x^2 - \sqrt{|x|}$ can't be represented as a quadratic function. If your trading cost were convex, it would still be a trivial problem, ...
  • 6,384
2 votes
Accepted

Smart transaction cost model (for spread contracts)

I think the assumption you made is incorrect. Buying 55 spreads + buy 10 July is totally different scenario comparing buying 50 spreads from the risk perspective as you are net long 10 June contracts ...
  • 382
2 votes
Accepted

Portfolio optimization subject to transaction costs

What you do looks ok. But in practice how would you set costpara? This coud have a huge impact on your optimization. So I would do something different. Define the ...
  • 13.3k
2 votes
Accepted

Difference between real and expected average transaction price of an order?

Some orders may be hidden, I guess your expected result is that you don't consider hidden orders as you can't see them in the limit order book, and the real result includes hidden orders.
1 vote

When backtesting Nikkei225 futures with market orders, how many points to account for eventual slippage and trading costs?

What is a reasonable amount of points or amount of money to account for slippage and costs for exchange and broker? Slippage will depend on many things - volatility and size are probably the most ...
  • 2,121
1 vote

Smooth pasting conditions for optimal investment with transactions costs

I think that they are saying that, at special point $u$, we have: $$ F'(u) = -\rho. $$ Also, that in a neighborhood from the left, we have: $$ F'(u- dU) = -\rho $$ for any small positive $dU$. Then, ...
  • 5,028
1 vote

How brokers' spread costs work?

The spread, or Bid-Ask spread indicates the difference between the prices which market participants are willing to sell at (Ask) and willing to buy at (Bid). If you are selling without any specific ...
  • 458
1 vote

Out-of-sample performance

Holding period return would be more appropriate. Calculate your one week return by using your ending portfolio NAV. The easiest way to do this would to be to store number of shares in each position ...
  • 376
1 vote

Modeling transaction cost with single-counted turnover ratio

I couldn't find a definitive reference of this term and it doesn't seem to be widely used. However, I think I can follow the logic: In their set-up the portfolio is rebalanced monthly. So, at the ...
  • 7,711
1 vote
Accepted

Intraday versus daily volatility in slippage estimation

There are two questions packed in here. I will attempt to answer one at a time. Does anyone have an idea of how this estimator works? A much more concise practical guide to this estimator is ...
1 vote

Typical coefficients uses in square-root model for market impact

Depends on the execution algorithm and market. I have heard of many funds spending few PhD years of research finding out the answer wrt their in house algorithms. Ususally they failed as they do not ...

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