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Order Book Resilience, Price Manipulation, and the Positive Portfolio Problem

Alfonsi Aurélien 1, 2 Alexander Schied 3 Alla Slynko 3 
2 MATHRISK - Mathematical Risk handling
Inria Paris-Rocquencourt, UPEM - Université Paris-Est Marne-la-Vallée, ENPC - École des Ponts ParisTech
Abstract : The viability of a market impact model is usually considered to be equivalent to the absence of price manipulation strategies. By analyzing a model with linear instantaneous, transient, and permanent impact components, we discover a new class of irregularities, which we call transaction-triggered price manipulation strategies. We prove that price impact must decay as a convex nonincreasing function of time to exclude these market irregularities along with standard price manipulation. This result is based on a mathematical theorem on the positivity of minimizers of a quadratic form under a linear constraint, which is in turn related to the problem of excluding the existence of short sales in an optimal Markowitz portfolio.
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https://hal-enpc.archives-ouvertes.fr/hal-00941333
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Soumis le : lundi 3 février 2014 - 16:53:07
Dernière modification le : jeudi 20 janvier 2022 - 17:29:32

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Alfonsi Aurélien, Alexander Schied, Alla Slynko. Order Book Resilience, Price Manipulation, and the Positive Portfolio Problem. SIAM Journal on Financial Mathematics, 2012, 3, pp.511-533. ⟨10.1137/110822098⟩. ⟨hal-00941333⟩

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