Abstract: We introduce a first theory of price impact in presence of an interest-rates term structure. We explain how one can formulate instantaneous and transient price impact on bonds with different maturities, including a cross price impact that is endogenous to the term structure. We connect the introduced impact to classic no-arbitrage theory for interest rate markets, showing that impact can be embedded in the pricing measure and that no-arbitrage can be preserved. We present pricing examples in presence of price impact and numerical examples of how impact changes the shape of the term structure. Finally, to show that our approach is applicable we solve an optimal execution problem in interest rate markets with the type of price impact we developed in the paper.
Recommendations
Cites work
- A general HJM framework for multiple yield curve modelling
- A Lévy HJM multiple-curve model with application to CVA computation
- Affine LIBOR models with multiple curves: theory, examples and calibration
- Affine multiple yield curve models
- Algorithmic and high-frequency trading
- Almost-sure hedging with permanent price impact
- An equilibrium characterization of the term structure
- Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation
- Cross-impact and no-dynamic-arbitrage
- Hedging of covered options with linear market impact and gamma constraint
- scientific article; zbMATH DE number 1066451 (Why is no real title available?)
- Interest rate modeling: post-crisis challenges and approaches
- Interest rate models -- theory and practice. With smile, inflation and credit
- Martingales and arbitrage in multiperiod securities markets
- Martingales and stochastic integrals in the theory of continuous trading
- Optimal execution strategies in limit order books with general shape functions
- Optimal portfolio liquidation in target zone models and catalytic superprocesses
- Optimal portfolio liquidation with limit orders
- Optimal Signal-Adaptive Trading with Temporary and Transient Price Impact
- Option pricing with linear market impact and nonlinear Black-Scholes equations
- Pricing interest-rate-derivative securities
- Term-structure models. A graduate course
- The financial mathematics of market liquidity. From optimal execution to market making
- The multi-curve potential model
- The self-financing equation in limit order book markets
- Transient linear price impact and Fredholm integral equations
Cited in
(3)
This page was built for publication: Price impact on term structure
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5068079)
