Sasha Stoikov (Cornell)
Market Microstructure for Cointegrated Assets
We define the notion of 'micro price' for multiple cointegrated assets. This yields a notion of fair prices, as a function of the observable state of multiple order books. We compute the microprices of two highly cointegrated assets, using Level-1 data collected on Interactive Brokers. We design an execution algorithm based on this two dimensional micro-price and show that it can save half of the bid-ask spread cost.