A hot-potato game under transient price impact and some effects of a transaction tax

@article{Schied2013AHG,
  title={A hot-potato game under transient price impact and some effects of a transaction tax},
  author={A. Schied and Tao Zhang},
  journal={arXiv: Trading and Market Microstructure},
  year={2013}
}
Building on observations by Sch\"oneborn (2008), we consider a Nash equilibrium between two high-frequency traders in a simple market impact model with transient price impact and additional quadratic transaction costs. We show that for small transaction costs the high-frequency traders engage in a "hot-potato game", in which the same asset position is sold back and forth. We then identify a critical value for the size of the transaction costs above which all oscillations disappear and… Expand

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