Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: id prices is called the mid-price, denoted pmid . sell sell Now suppose that you want to purchase q > 0 shares of the asset, where q ≤ q1 + · · · + qN , i.e., your purchase quantity does not exceed the total amount of the asset currently offered for sale. Your purchase proceeds as follows. Suppose that sell sell sell sell q1 + · · · + qk < q ≤ q1 + · · · + qk+1 . Then you pay an amount sell sell sell sell A = psell q1 + · · · + psell qk + psell (q − q1 − · · · − qk ). 1 k k+1 Roughly speaking, you work your way through the offers in the order book, from the least (ask) price, and working your way up the order book until you fill the order. We define the transaction cost as T (q ) = A − pmid q. This is the difference between what you pay, and what you would have paid had you been able to purchase the shares at the mid-price. It is always positive. We handle the case of selling the asset in a similar way. Here we take q < 0 to mean that we sell −q...
View Full Document

This note was uploaded on 09/10/2013 for the course C 231 taught by Professor F.borrelli during the Fall '13 term at University of California, Berkeley.

Ask a homework question - tutors are online