Quants turn to machine learning to model market impact

JP Morgan, Bloomberg and Portware among those applying AI to long-standing problem

Buy-side quants have long struggled to understand and master the effect of a firm’s own trading on market prices – so-called ‘market impact’.

In particular, the challenge of trading out of big positions is sometimes compared to pushing an elephant into a swimming pool and hoping to avoid the splash. The standard approach for firms wanting an indication of how big a splash to expect has been to examine the impact of similar trades in the past.

But when firms look closely, they find few trades a