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Quantitative Finance · Glossary

What is No-dynamic-arbitrage condition?

Definition 12.4 Microstructure and Execution · Chapter 12 — Transient Impact and Propagator Models

An impact model satisfies the no-dynamic-arbitrage condition when no round trip, a sequence of buys and sells with zero net position, has a negative expected cost: x⊤Γx≥0x^\top\Gamma x\ge0 whenever ∑x=0\sum x=0 (the kernel is positive definite on round trips).

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