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Lecture 28

Market Impact Models

Introduction

Modeling market impact is an essential, and often overlooked, part of trading. At the end of the day, whatever model you use to decide what orders to place, those orders must be executed in a real market in order to make money. Orders do not get instantly filled either, the price at which you actually get filled will depend on a variety of factors. Larger orders are harder to fill, and more volatile markets can cause the fill price to be very different from what you expect. We'll go through real examples in this lecture showing how to go about modeling the impact of your trades.

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