Prof. Costis MAGLARAS (Columbia University, New York)

Algorithmic Trading and Microstructure of Limit Order Books (May 5-6-7 2015)

Abstract:

Most financial markets are becoming electronic and typically operated as limit order books. In this series of lectures we will review the microstructure of electronic limit order book markets and some issues related to algorithmic trading. We will start with a broad overview of these topics highlighting some important engineering details and key mathematical problems, followed by a more detailed review of some specific questions that highlight the queueing behavior of LOB markets over short time scales.

Lecture 1. ALGORITHMIC TRADING

May 5, 18:00-20:00 - LT 340, Huxley Building)

(a) Overview of algorithmic trading: i) high level view of the ecosystem: buy side / sell side; role of market makers; types of trading behaviors and their respective high-level considerations. ii) algorithmic trading strategies; iii) trade scheduling and the role of market impact; iv) execution in a LOB; v) other considerations, such as fragmentation, internalization, time-scales of tactical trading decisions, incentives, …

(b) Limit order book as a queueing system: i) LOB description; ii) point process view of LOB; iii) quick preview of event data; iv) key tactical and descriptive questions; v) background on asymptotic analysis of queues in equilibrium

Lecture 2. LIMIT ORDER BOOK AS A MULTI CLASS QUEUEING NETWORK

(May 6, 18:00-20:00 - LT 340, Huxley Building

(a) LOB transient dynamics, cancellations, and queue waiting times: i) exponential abandonment model (Erlang-A); ii) transient dynamics and queue equilibrium;  queue delay; cancellation behavior and queue position; iii) a model with heterogenous order flow (algorithmic & MM); iv) transient, equilibrium, queueing delay, cancellation behavior; v) data

(b) Execution in LOB and a microstructure model of market impact: i) optimal execution in LOB; ii) expected execution cost; iii) detour on market impact models; iv) microstructure model of market impact (short term); v) data calibration and insights

Lecture 3. OPTIMAL EXECUTION IN A LIMIT ORDER BOOK AND MARKET IMPACT

(May 7, 18:00-20:00 - LT 340, Huxley Building)

(a) Order routing in fragmented LOB markets: i) stylized models of optimal order routing; ii) mean-field analysis and associated state-space collapse; iii) PSFM (glimpse); iv) empirical validation;

(b) Stochastic approximations of LOB: i) Diffusion approximations; operating regimes; predictions; ii) PSFM; iii) one size (does) not fit all (parameter regimes)

Download Professor Costis Maglaras' lecture slides here