Permanent market impact can be nonlinear

Understand

There are two schools of thought regarding market impact modeling.

• On the one hand, seminal papers by Almgren and Chriss introduced a decomposition between a permanent market impact and a temporary (or instantaneous) market impact.
• This decomposition is used by most practitioners in execution models.
• On the other hand, recent research advocates for the use of a new modeling framework that goes down to the resilient dynamics of order books: transient market impact.