Trading lightly: cross-impact and optimal portfolio execution

13 February 2017

Social sharing

Share via Twitter Share via LinkedIn Share via Email
From Risk Magazine's July 2017 issue.

We model the impact costs of a strategy that trades a basket of correlated instruments, by extending to the multivariate case the linear propagator model previously used for single instruments. Our specification allows us to calibrate a cost model that is free of arbitrage and price manipulation. We illustrate our results using a pool of US stocks and show that neglecting cross-impact effects leads to an incorrect estimation of the liquidity and suboptimal execution strategies. We show in particular the importance of synchronising the execution of correlated contracts.


Iacopo Mastromatteo , Michael Benzaquen , Zoltán Eisler , Adam Rej

Related articles