hard · Market Microstructure
An institutional desk is evaluating the cost of a large sell order of 300,000 shares of Gamma Inc (ADV: 1,500,000; Price: 60;σ_daily: 2%). Using an Almgren-Chriss impact model withγ = 0.3, the trader estimates the total impact cost of executing the order over one day.
Which component represents the 'permanent impact' in this specific scenario?
- The inventory holding cost premium charged by the dealer for the capital commitment.
- The bid-ask bounce resulting from the oscillation of trades between the bid and ask sides.
- The information content of the trade that causes the market midpoint to shift permanently.
- The price concession required to induce immediate liquidity provision that eventually reverts.
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