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Quantitative Finance · Glossary

What is Capture decay?

Definition 28.2 Market Making and High-Frequency Trading · Chapter 28 — P&L Analytics and the Strategy Lifecycle

Capture decay is the decline over time of the share of the spread a market-making strategy keeps, or of the share of the flow it trades, as competitors copy it, venues change or the flow it served goes elsewhere.

Detecting the competitor: the maker’s daily share of venue B’s volume and the one-sided CUSUM statistic of its shortfall from 12% (slack 0.5 point, threshold 0.05, dotted), days 150 to 199; the share falls on day 175 and the statistic crosses on day 176; the treated days after day 182 show the parameter’s 10% more share. Data: hf_attrib.cusum_path.
Figure 28.2. Detecting the competitor: the maker’s daily share of venue B’s volume and the one-sided CUSUM statistic of its shortfall from 12% (slack 0.5 point, threshold 0.05, dotted), days 150 to 199; the share falls on day 175 and the statistic crosses on day 176; the treated days after day 182 show the parameter’s 10% more share. Data: hf_attrib.cusum_path.
The month-on-month change in P&L attributed to the half-spread, market volume, the competitor on venue B and the parameter change, with the planted values and with the values estimated from the strategy’s data (the change point and the experiment); the residual is what neither explains. Data: hf_attrib.month9.
Figure 28.3. The month-on-month change in P&L attributed to the half-spread, market volume, the competitor on venue B and the parameter change, with the planted values and with the values estimated from the strategy’s data (the change point and the experiment); the residual is what neither explains. Data: hf_attrib.month9.
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