Retrieve Market-Impact Parameters and Create Example Data

Retrieve the market-impact data from the Kissell Research Group FTP site. Connect to the FTP site using the ftp function with a user name and password. Navigate to the MI_Parameters folder and retrieve the market-impact data in the MI_Encrypted_Parameters.csv file. miData contains the encrypted market-impact date, code, and parameters.

f = ftp('ftp.kissellresearch.com','username','pwd');
mget(f,'MI_Encrypted_Parameters.csv');
close(f)

miData = readtable('MI_Encrypted_Parameters.csv','delimiter', ...
    ',','ReadRowNames',false,'ReadVariableNames',true);

Create a Kissell Research Group transaction cost analysis object k.

k = krg(miData);

Create Single Stock Data

The structure tradeData contains data for a single stock. Use a structure or table to define this data. The fields are:

tradeData.Shares = 100000;
tradeData.ADV = 1000000;
tradeData.Volatility = 0.25;
tradeData.Price = 35;
tradeData.POV = 0.5;
tradeData.Alpha_bp = 50;

Define Optimization Parameters

Define risk aversion level Lambda. Set Lambda from 0 to Inf.

Lambda = 1;

Define lower LB and upper UB bounds of strategy input for optimization.

LB = 0;
UB = 1;

Define the function handle fun for the objective function. To access the code for this function, enter edit krgSingleStockOptimizer.m.

fun = @(pov)krgSingleStockOptimizer(pov,k,tradeData,Lambda);

Minimize Trading Costs for Trade Strategy

Minimize the trading costs for the percentage of volume trade strategy. fminbnd finds the optimal value for the percentage of volume trade strategy based on the lower and upper bound values. fminbnd finds a local minimum for the trading cost minimization expression.

[tradeData.POV,totalcost] = fminbnd(fun,LB,UB);

Display the optimized trade strategy tradeData.POV.

tradeData.POV

ans =

    0.35

Estimate Trading Costs for Optimized Strategy

Estimate the trading costs povCosts using the optimized trade strategy.

mi = marketImpact(k,tradeData);
pa = priceAppreciation(k,tradeData);
tr = timingRisk(k,tradeData);
povCosts = [totalcost mi pa tr];

Display trading costs.

povCosts

        100.04         56.15          4.63         39.27

The trading costs are:

For details about the preceding calculations, contact the Kissell Research Group.