A Market Impact Game Under Transient Price Impact

• 成果类型: Article
• 署名作者: Schied, Alexander; Zhang, Tao
• 署名单位: University of Waterloo; University of Mannheim
• 刊物名称: MATHEMATICS OF OPERATIONS RESEARCH
• ISSN/ISSBN: 0364-765X
• DOI: 10.1287/moor.2017.0916
• 发表日期: 2019
• 页码: 102-121
• 关键词: optimal execution; limit; manipulation

摘要

We consider a Nash equilibrium between two high-frequency traders (HFTs) in a simple market impact model with transient price impact and additional quadratic transaction costs. We prove existence and uniqueness of the Nash equilibrium and show that, for small transaction costs, the HFTs engage in a hot potato game, in which the same asset position is sold back and forth. We then identify a critical value for the size of the transaction costs above, for which all oscillations disappear and strategies become buy only or sell only. Numerical simulations show that, for both traders, the expected costs can be lower with transaction costs than without. Moreover, the costs can increase with the trading frequency if there are no transaction costs but decrease with the trading frequency if transaction costs are sufficiently high. We argue that these effects occur due to the need for protection against predatory trading in the regime of low transaction costs.