Book Image

Mastering R for Quantitative Finance

Book Image

Mastering R for Quantitative Finance

Overview of this book

This book is intended for those who want to learn how to use R's capabilities to build models in quantitative finance at a more advanced level. If you wish to perfectly take up the rhythm of the chapters, you need to be at an intermediate level in quantitative finance and you also need to have a reasonable knowledge of R.
Table of Contents (15 chapters)
14
Index

Motivation


The motivation behind gaining a better understanding of volume is not merely theoretical, but it equally has a great practical relevance. On order-driven markets, if a submitted buy (sell) market order is relatively large compared to the market, it will possibly swipe out several price levels; thus, the achieved average price on the entire trade will be higher (lower) than the best price level at the moment of order submission, and the submitter loses money. This phenomenon is often referred to as price impact, and it is well worth making an effort to avoid or at least minimize it.

One way to do this is to perform order splitting, that is, splitting a market order into smaller chunks and submitting them gradually. Among the numerous logics behind splitting, a popular one is the volume weighted average price (VWAP) strategy that aims to obtain the daily weighted average price where weights are determined by the volume transacted relative to the total daily volume. Long-term investors...