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Trading with Concave Price Impact and Impact Decay—Theory and Evidence

Author

Listed:
  • Natascha Hey

    (Chair of Econophysics and Complex Systems, École Polytechnique, 91120 Palaiseau, France)

  • Iacopo Mastromatteo

    (Capital Fund Management, 75007 Paris, France)

  • Johannes Muhle-Karbe

    (Department of Mathematics, Imperial College London, London SW7 2AZ, United Kingdom)

  • Kevin Webster

    (Department of Mathematics, Imperial College London, London SW7 2AZ, United Kingdom)

Abstract

We study statistical arbitrage problems accounting for the nonlinear and transient price impact of metaorders observed empirically. We show that simple explicit trading rules can be derived even for general nonparametric alpha and liquidity signals and also discuss extensions to several impact decay timescales. These results are illustrated using a proprietary data set of Capital Fund Management metaorders, which allows us to calibrate the levels, concavity, and decay parameters of the price impact model and analyze their effects on optimal trading.

Suggested Citation

  • Natascha Hey & Iacopo Mastromatteo & Johannes Muhle-Karbe & Kevin Webster, 2025. "Trading with Concave Price Impact and Impact Decay—Theory and Evidence," Operations Research, INFORMS, vol. 73(3), pages 1230-1247, May.
    • Handle: RePEc:inm:oropre:v:73:y:2025:i:3:p:1230-1247
    DOI: 10.1287/opre.2023.0620
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