Transaction Costs & Market Impact: Models & Analysis › Key Parameters
Michael BrenndoerferJanuary 8, 20261 min read
Quantitative FinanceAll chapters Part 14 of 15Strategy Development and Backtesting
Transaction Costs & Market Impact: Models & Analysis › Key ParametersOne section · Sections in this chapter11 / 16 ↓
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The key parameters for the Transaction Cost Model are:
- Commission: Explicit fee per share or per trade.
- Spread: Bid-ask spread in basis points. This captures the cost of crossing the spread for immediate execution.
- ̑: Market impact coefficient. Scales the impact relative to volatility and participation rate.
- ̓: Market impact exponent. Determines the curvature of the price impact function.
- Participation Rate: Ratio of trade size to daily volume (). A primary driver of market impact costs.