Interpretable market-impact dynamics
A transparent experimental pipeline for isolating the price impact of large orders and discovering compact differential equations that describe it.
The challenge
Large institutional orders are split into smaller trades. Their price impact accumulates during execution and relaxes afterwards, but ordinary market drift makes that effect difficult to isolate and black-box forecasts are hard to interpret.
The approach
- 01Designed paired baseline and treatment simulations from the same initial order-book state and stochastic seed.
- 02Defined signed counterfactual impact from the difference between baseline and TWAP trajectories.
- 03Built separate controlled sparse-dynamics models for execution and post-trade relaxation.
- 04Created explicit data, evaluation and provenance contracts so future empirical claims remain auditable.
The outcome
The research prototype implements the intended pipeline, sparse-regression components and deterministic presentation layer. Its current visual dataset is deliberately illustrative; empirical conclusions await completed and audited simulation runs.