Question: A trading strategy is using a random-walk-plus-drift model, p t = p t-1 + + u t . The current stock price is $8.40

A trading strategy is using a random-walk-plus-drift model, p_t = p_t-1 + α + u_t. The current stock price is $8.40 and the parameter values are α = 0.005 and σ_u= 0.03. The algo trader realises that buy volume also impacts share prices and so decides to include net buy volume as an additional factor in their model. If you assume that the effect of buying shares is concave.

What is the expected stock price in the next period if the net buy volume is 1,600 shares and the price impact parameter is 0.001?

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