PLEASE NOTE THAT THIS IN-PERSON EVENT WILL START ON TUESDAY, 29 OCTOBER, 2024, AT 6:00 PM GMT (LONDON TIME) (2.00 PM EST (NEW YORK TIME)) at G-Research offices.

This event is sponsored by G-Research (Silver Sponsor), First Derivatives plc (Bronze Sponsor), FirstRate Data (Bronze Sponsor), KX, Inc. (Bronze Sponsor), Turnleaf Analytics (Bronze Sponsor), Hudson and Thames (Bronze Sponsor), and Packt (Media Partner).

This event is hosted by G-Research, Europe's leading quantitative finance research firm: We hire the brightest minds in the world to tackle some of the biggest questions in finance. We pair this expertise with machine learning, big data, and some of the most advanced technology available to predict movements in financial markets.

Venue: G-Research, Whittington House, 19-30 Alfred Place, London, WC1E 7EA

Arrival time of 18:00 (London) and talk starts at 18:30 (London).

Seminar will last between 1 to 1.5 hours, followed by networking / food / drinks.

Please note that your Thalesians Meetup profile must include your full name (and the full names of all your guests) in order to be admitted by the venue, G-Research (health and safety regulations). If it doesn't include it, please email it to [email protected] along with your profile name.

FULL TITLE: The Cost of Misspecifying Price Impact

ABSTRACT

Portfolio managers’ orders trade off return and trading cost predictions. Return predictions rely on alpha models, whereas price impact models quantify trading costs. This paper studies what happens when trades are based on an incorrect price impact model, so that the portfolio either over- or under-trades its alpha signal. We derive tractable formulas for these misspecification costs and illustrate them on proprietary trading data. The misspecification costs are naturally asymmetric: underestimating impact concavity or impact decay shrinks profits, but overestimating concavity or impact decay can even turn profits into losses. (Based on joint work with Jean-Philippe Bouchaud, Natascha Hey, Iacopo Matromatteo and Kevin Webster)

REFERENCES

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4465282 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4625040

BIOGRAPHY

Johannes Muhle-Karbe joined the Department of Mathematics at Imperial College London in January 2019 as Chair in Mathematical Finance and Director of the CFM-Imperial Institute of Quantitative Finance. Before this appointment, Johannes held faculty positions at Carnegie Mellon University, University of Michigan, and ETH Zürich.

His research primarily focuses on areas such as asset pricing, portfolio optimization, and stochastic control, particularly in connection with market microstructure and the impact of transaction costs.

Prof. Muhle-Karbe has made significant contributions to the understanding of mathematical models in finance, especially in how investors should optimally trade in the presence of frictions such as transaction costs. His work spans both theoretical development and practical applications, contributing to the broader fields of quantitative finance and financial mathematics. His research and teaching influence students and professionals alike, particularly those involved in the mathematical modeling of financial markets.