Описание
xiv Preface
data and empirical implications. The data allow us to present the context which
determines the ultimate fate of an algorithm. By looking at prices, volumes, and
the details of the limit order book, the reader will get a basic overview of some of
the key issues that any algorithm needs to account for, such as the information
in trades, properties of price movements, regularities in the intraday dynamics
of volume, volatility, spreads, etc.
Part II develops the mathematical tools for the analysis of trading algorithms.
The chapter on stochastic optimal control and stopping provides a pragmatic
approach to material which is less standard in financial mathematics textbooks.
It is also written so that readers without previous exposure to these techniques
equip themselves with the necessary tools to understand the mathematical models behind some algorithmic trading strategies.
Part III of the book delves into the modelling of algorithmic trading strategies.
The first two chapters are concerned with optimal execution strategies where the
agent must liquidate or acquire a large position over a pre-specified window and
trades continuously using only market orders. Chapter 6 covers the classical
execution problem when the investor's trades impact the price of the asset and
also adjusts the level of urgency with which she desires to execute the programme.
In Chapter 7 we develop three execution models where the investor: i) carries
out the execution programme as long as the price of the asset does not breach
a critical boundary, ii) incorporates order flow in her strategy to take advantage
of trends in the midprice which are caused by one-sided pressure in the buy or
sell side of the market, and iii) trades in both a lit venue and a dark pool.
In Chapter 8 we assume that the investor's objective is to execute a large
position over a trading window, but employs only limit orders, or uses both limit
and market orders. Moreover, we show execution strategies where the investor
also tracks a particular schedule as part of the liquidation programme.
Chapter 9 is concerned with execution algorithms that target volume-based
schedules. We develop strategies for investors who wish to track the overall volume traded in the market by targeting: Percentage of Volume, Percentage of
Cumulative Volume, and Volume Weighted Average Price, also known as VWAP.
The final three chapters cover various topics in algorithmic trading. Chapter
10 shows how market makers choose where to post limit orders in the book. The
models that are developed look at how the strategies depend on different factors
including the market maker's aversion to inventory risk, adverse selection, and
short-term lived trends in the dynamics of the midprice.
Finally, Chapter 11 is devoted to statistical arbitrage and pairs trading, and
Chapter 12 shows how information on the volume supplied in the limit order
book is employed to improve execution algorithms.
Style of the book
In choosing the content and presentation of the book we have tried to provide
a rigorous yet accessible overview of the main foundational issues in market
Детали
- Год издания
- 2015
- Format