Execution performance under specific price models (Financial Modeling and Analysis)

Abstract

In this paper we give a discussion of how off-exchange transaction fees change due to price reversion, taking into account two pricing models. Institutional investors can easily profit by manipulating prices on the exchange and then trading against them on the off-exchange because they influence prices through large executions. From this point, we obtain the transaction fee for the off-exchange trading so that the profit is zero by using off-exchange trading. Specifically, the transaction fee for the off-exchange will be defined as the profit generated by round-trip trading, which takes into account the use of optimal execution strategies for exchange trades and the off-exchange trade.