Trading and Market Microstructure
This paper conducts an empirically study on the trade package composed of a sequence of consecutive purchases or sales of 23 stocks in Chinese stock market. We investigate the probability distributions of the execution time, the number of…
We study the market impact of a meta-order in the framework of the Minority Game. This amounts to studying the response of the market when introducing a trader who buys or sells a fixed amount h for a finite time T. This perturbation…
We introduce a modular framework for market making. It combines cost-function based automated market makers with bandit algorithms. We obtain worst-case profits guarantee's relative to the best in hindsight within a class of natural…
Regarding the intraday sequence of high frequency returns of the S&P index as daily realizations of a given stochastic process, we first demonstrate that the scaling properties of the aggregated return distribution can be employed to define…
The classical literature on optimal liquidation, rooted in Almgren-Chriss models, tackles the optimal liquidation problem using a trade-off between market impact and price risk. Therefore, it only answers the general question of the optimal…
A general framework is suggested to describe human decision making in a certain class of experiments performed in a trading laboratory. We are in particular interested in discerning between two different moods, or states of the investors,…
Order submission and cancellation are two constituent actions of stock trading behaviors in order-driven markets. Order submission dynamics has been extensively studied for different markets, while order cancellation dynamics is less…
We show that the statistics of spreads in real order books is characterized by an intrinsic asymmetry due to discreteness effects for even or odd values of the spread. An analysis of data from the NYSE order book points out that traders'…
We introduce solvable stochastic dealer models, which can reproduce basic empirical laws of financial markets such as the power law of price change. Starting from the simplest model that is almost equivalent to a Poisson random noise…
Assuming geometric Brownian motion as unaffected price process $S^0$, Gatheral & Schied (2011) derived a strategy for optimal order execution that reacts in a sensible manner on market changes but can still be computed in closed form. Here…
In this paper we study the continuum time dynamics of a stock in a market where agents behavior is modeled by a Minority Game and a Grand Canonical Minority Game. The dynamics derived is a generalized geometric Brownian motion; from the…
We introduce a new model for describing the fluctuations of a tick-by-tick single asset price. Our model is based on Markov renewal processes. We consider a point process associated to the timestamps of the price jumps, and marks associated…
At the ultra high frequency level, the notion of price of an asset is very ambiguous. Indeed, many different prices can be defined (last traded price, best bid price, mid price,...). Thus, in practice, market participants face the problem…
This paper addresses the optimal scheduling of the liquidation of a portfolio using a new angle. Instead of focusing only on the scheduling aspect like Almgren and Chriss, or only on the liquidity-consuming orders like Obizhaeva and Wang,…
We introduce a prototype model in an attempt to capture some aspects of market dynamics simulating a trading mechanism. The model description starts with a discrete-space, continuous-time Markov process describing arrival and movement of…
It is well known that the distribution of returns from various financial instruments are leptokurtic, meaning that the distributions have "fatter tails" than a Normal distribution, and have skew toward zero. This paper presents a graceful…
In this paper we complete and extend our previous work on stochastic control applied to high frequency market-making with inventory constraints and directional bets. Our new model admits several state variables (e.g. market spread,…
We give a complete solution to the problem of minimizing the expected liquidity costs in presence of a general drift when the underlying market impact model has linear transient price impact with exponential resilience. It turns out that…
Motivated by the practical challenge in monitoring the performance of a large number of algorithmic trading orders, this paper provides a methodology that leads to automatic discovery of the causes that lie behind a poor trading…
High frequency trading has led to widespread efforts to reduce information propagation delays between physically distant exchanges. Using relativistically correct millisecond-resolution tick data, we document a 3-millisecond decrease in…