Fabrizio Lillo (Scuola Normale Superiore di Pisa)

Market Impact Models and Optimal Execution Algorithms

 ABSTRACT:

In these lectures I will present some recent results on the mathematical and econometric modeling of the microstructure of financial markets. Specifically I will focus on the relation between market impact and order flow, mostly in a limit order book market, and how they combine themselves in the price formation process. I will discuss some important practical applications such as optimal execution.

Lecture 1. MICROSTRUCTURE OF DOUBLE AUCTION MARKETS

(Tuesday June 7, 17:00-19:00, LT 340, Huxley Building)

The first lecture provides an introduction to limit order book markets, market impact(s), and order flow. It presents some stylized empirical facts and mathematical and econometric models for the dynamics of the order flow and of the limit order book. 

Lecture 2. MARKET IMPACT MODELS

(Thursday June 9, 17:00-19:00, LT 340, Huxley Building)

The second lecture presents different classes of models of market impact and price formation. In particular, I will present both real time and transaction time models, and I will consider both reduced form models and order book models.   

Lecture 3. MARKET IMPACT OF LARGE TRADES AND OPTIMAL EXECUTION

(Thursday June 16, 17:00-19:00, LT 130, Huxley Building)

The focus of the third lecture is on the market impact of large trades, discussing both empirical results and comparison with the models presented in the first two lectures. Finally I will discuss the optimal execution problem in the presence of nonlinear and transient market impact.

REFERENCES

1. J.P. Bouchaud, J. D. Farmer, and F. Lillo, How markets slowly digest changes in supply and demand (2009).
2. Elia Zarinelli, Michele Treccani, J. Doyne Farmer, Fabrizio Lillo, Beyond the square root: Evidence for logarithmic dependence of market impact on size and participation rate  (2015).
3. Bence Toth, Imon Palit, Fabrizio Lillo, J. Doyne Farmer, Why is equity order flow so persistent? (2015).
4. Gianbiagio Curato, Jim Gatheral, Fabrizio Lillo, Optimal execution with nonlinear transient market impact (2014).
5. Damian Eduardo Taranto, Giacomo Bormetti and Fabrizio Lillo, The adaptive nature of liquidity taking in limit order books. (2014)
6. J. Doyne Farmer, Austin Gerig, Fabrizio Lillo, Henri Waelbroeck, How efficiency shapes market impact  (2013).