6
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 (...
- 11.9k
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
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 ...
- 2,880
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 ...
- 14.7k
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, ...
- 6,924
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 ...
- 402
2
votes
Is there a difference between heterogeneous expectations and heterogeneous cost of capital? How are assets priced in these situations?
Yes, there is a difference between "heterogeneous expectations" and "heterogeneous cost of capital" (of investors). Usually, while the first is about something in future, the ...
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.
- 36
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 ...
- 13.6k
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
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 ...
- 2,209
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, ...
- 5,008
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
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 ...
- 8,438
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 ...
- 2,985
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