The viability of a market impact model is usually considered to be equivalent to the absence of price manipulation strategies in the sense of Huberman & Stanzl (2004). By analyzing a model with linear instantaneous, transient, and permanent impact components, we discover a new class of irregularities, which we call transaction-triggered price manipulation strategies. Transaction-triggered price manipulation is closely related to the non-existence of measure-valued solutions to a Fredholm integral equation of the first kind. We prove that price impact must decay as a convex decreasing function of time to exclude these market irregularities along with standard price manipulation. We also prove some qualitative properties of optimal strategies and provide explicit expressions for the optimal strategy in several special cases of interest. Joint work with Aurélien Alfonsi, Jim Gatheral, and Alla Slynko.
