Mathematical Finance & Financial Data Science Seminar
How Price Impact Distorts Accounting P&L - Revisiting Caccioli, Bouchaud and Farmer's impact-adjusted valuation
Speaker: Kevin Webster, Citadel
Location: Online Zoom access provided to registrants
Date: Tuesday, June 28, 2022, 5:30 p.m.
This presentation revisits the key message from Caccioli, Bouchaud and Farmer (2012) "A proposal for impact-adjusted valuation": traditional marked to mid accounting P&L overestimates a portfolio's true P&L.
Under the Obhizaeva and Wang model, this talk proves that marked to mid P&L is mechanically inflated by price impact. This artificial P&L never persists: it either slowly deflates over time, or evaporates during liquidation.
As pointed out by Caccioli, Bouchaud and Farmer, applications of these results include portfolio and risk management, extending the reach of price impact models outside of traditional trading problems.
Dr Kevin Webster graduated with a PhD from Princeton University Operations Research and Financial Engineering Department (ORFE). At ORFE, he studied mathematical models applied to high frequency trading, with a large emphasis on price impact and market making.
Upon graduation in 2014, he worked initially as a researcher at Deutsche Bank and then joined Citadel in 2016. He is currently on garden leave from Citadel.
Dr Kevin Webster created and taught a course, ORF 474 High Frequency Markets: Models and Data Analysis, as a visiting lecturer at Princeton in the 2015 school year. His publications include "The self-financing equation in high frequency markets", "Information and inventories in high frequency trading", "A portfolio manager's guidebook to trade execution" and "High frequency market making".