Refer to CFI textbook Vol 6. Practice problem. Q10 for Reading 44.
They use the following formula and take mid quote as benchmark price to calculate implementation shortfall. I don’t understand why.
Trade size
Whenever you have to use Price Benchmark remember these formulas to calculate Total Transaction cost.
1) For sell orders
Total cost = ( Benchmark Price - Trade price ) Volume
2) For Buy Orders
Total Cost = ( Trade Price - Benchmark Price) Volume
Benchamark Price Could be any of these prices :
Mid quote ( Used for IS estimate of Total Cost)
VWAP ( Can be gamed )
Opening Price (Can be Gamed)
Closing Price (Can be Gamed)
Can anyone explain ? Also, where could I find the
above formula in the textbook?
Footnote 20 pg 16
Benchmark price, i.e., decision price can usually be one of those two.
发表于 2013-4-14 19:22
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