Trading and Market Microstructure
We outline the idiosyncrasies of neural information processing and machine learning in quantitative finance. We also present some of the approaches we take towards solving the fundamental challenges we face.
We consider the problem of optimal trading for a power producer in the context of intraday electricity markets. The aim is to minimize the imbalance cost induced by the random residual demand in electricity, i.e. the consumption from the…
Attempts to accurately measure the monetary velocity or related properties of bitcoin used in transactions have often attempted to either directly apply definitions from traditional macroeconomic theory or to use specialized metrics…
The composition of natural liquidity has been changing over time. An analysis of intraday volumes for the S&P500 constituent stocks illustrates that (i) volume surprises, i.e., deviations from their respective forecasts, are correlated…
We propose a model for equity trading in a population of agents where each agent acts to achieve his or her target stock-to-bond ratio, and, as a feedback mechanism, follows a market adaptive strategy. In this model only a fraction of…
A risk-neutral valuation framework is developed for pricing and hedging in-play football bets based on modelling scores by independent Poisson processes with constant intensities. The Fundamental Theorems of Asset Pricing are applied to…
In this paper we investigate the endogenous information contained in four liquidity variables at a five minutes time scale on equity markets around the world: the traded volume, the bid-ask spread, the volatility and the volume at first…
In this paper we propose a mathematical framework to address the uncertainty emergingwhen the designer of a trading algorithm uses a threshold on a signal as a control. We rely ona theorem by Benveniste and Priouret to deduce our Inventory…
We model the behavior of three agent classes acting dynamically in a limit order book of a financial asset. Namely, we consider market makers (MM), high-frequency trading (HFT) firms, and institutional brokers (IB). Given a prior dynamic of…
Both the scientific community and the popular press have paid much attention to the speed of the Securities Information Processor, the data feed consolidating all trades and quotes across the US stock market. Rather than the speed of the…
We study the high-frequency limits of strategies and costs in a Nash equilibrium for two agents that are competing to minimize liquidation costs in a discrete-time market impact model with exponentially decaying price impact and quadratic…
Understanding the structure of financial markets deals with suitably determining the functional relation between financial variables. In this respect, important variables are the trading activity, defined here as the number of trades $N$,…
Relationship lending is broadly interpreted as a strong partnership between a lender and a borrower. Nevertheless, we still lack consensus regarding how to quantify the strength of a lending relationship, while simple statistics such as the…
We first investigate the evolution of opening and closing auctions volumes of US equities along the years. We then report dynamical properties of pre-auction periods: the indicative match price is strongly mean-reverting because the…
We report on the occurrence of an anomaly in the price impacts of small transaction volumes following a change in the fee structure of an electronic market. We first review evidence for the existence of a master curve for price impact on…
We propose the application of a high-speed maximum likelihood clustering algorithm to detect temporal financial market states, using correlation matrices estimated from intraday market microstructure features. We first determine the ex-ante…
In this study, we focus on the market clearing problem of Turkish day-ahead electricity market. We propose a mathematical model by extending the variety of bid types for different price regions. The commercial solvers may not find any…
We describe a simple model for speculative trading based on adaptive behavior of economic agents.The adaptive behavior is expressed through a feedback mechanism for changing agents' stock-to-bond ratios, depending on the past performance of…
We consider a one-period Kyle (1985) framework where the insider can be subject to a penalty if she trades. We establish existence and uniqueness of equilibrium for virtually any penalty function when noise is uniform. In equilibrium, the…
These are the lecture notes for the summer course given for 2018 Mathematical Finance Summer School at Shandong Unversity. It contains a brief introduction to the Kyle model and the related topics in filtering, enlargement of filtrations…