Transaction Costs & Market Impact: Models & Analysis › Key Parameters

Michael BrenndoerferJanuary 8, 20261 min read
Quantitative FinanceAll chapters
Part 14 of 15Strategy Development and Backtesting
Chapter 74Transaction Costs & Market Impact: Models & Analysis › Key Parameters
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The key parameters for transaction cost estimation are:

  • seffs_{\text{eff}}: Effective spread. Captures the cost of immediate execution relative to the midpoint.
  • Cov: Autocovariance of price changes. Used in Roll's estimator to infer spread from price dynamics.
  • ̑: Impact coefficient estimated from regression.
  • ̓: Impact exponent. The slope of the regression line in log-log space.
  • Q/VQ/V: Participation rate. The independent variable in impact modeling.