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(February 2013)
posted to hft microstructure regulation
by lehalle
on 2013-02-26 14:41:46
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(December 2012)
posted to dark-pool survey trading
by lehalle
on 2013-02-20 22:10:58
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Navigating Liquidity, Vol. 3 (September 2009)
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Navigating Liquidity, Vol. 4 (April 2010)
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Navigating Liquidity, Vol. 5 (December 2010)
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Navigating Liquidity, Vol. 6 (January 2012)
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Les Cahiers de l'ILB, Vol. 3 (July 2011)
posted to microstructure optimal-trading
by lehalle
on 2012-08-20 16:22:15
Abstract
Le trading quantitatif regroupe les techniques permettant de rationaliser l'implémentation sur les marchés des décisions d'investissement. Ces techniques sont nées autour de l'achat et la vente de grosses quantités d'actions sur les marchés électroniques. Si on achète ou que l'on vend trop rapidement, le prix sera dégradé (cet effet est appelé 'market impact') alors que si on achète ou vend très lentement pour éviter de perturber le processus de formation des prix, on court le risque que le prix change pendant l'implémentation de la décision, la rendant ainsi ...
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(May 2012)
Abstract
We derive explicit recursive formulas for Target Close (TC) and Implementation Shortfall (IS) in the Almgren-Chriss framework. We explain how to compute the optimal starting and stopping times for IS and TC, respectively, given a minimum trading size. We also show how to add a minimum participation rate constraint (Percentage of Volume, PVol) for both TC and IS. We also study an alternative set of risk measures for the optimisation of algorithmic trading curves. We assume a self-similar process (e.g. Lévy ...
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In Market Microstructure Confronting Many Viewpoints
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(2012)
Abstract
Based on the December 2010 Bachelier Society annual conference on market microstructure, this guide brings together the leading thinkers to discuss this important field of modern finance. It provides readers with vital insight on the origin of the well–known anomalous "stylized facts" in financial prices series, namely heavy tails, volatility, and clustering, and illustrates their impact on the organization of markets, execution costs, price impact, organization liquidity in electronic markets, and other issues raised by high–frequency trading. World–class contributors cover topics ...
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In Handbook on Systemic Risk (May 2013)
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(11 Dec 2011)
Abstract
This paper presents a stochastic recursive procedure under constraints to find the optimal distance at which an agent must post his order to minimize his execution cost. We prove the $a.s.$ convergence of the algorithm under assumptions on the cost function and give some practical criteria on model parameters to ensure that the conditions to use the algorithm are fulfilled (using notably principle of opposite monotony). We illustrate our results with numerical experiments on simulated data but also by using a financial market dataset. ...
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Mathematics and Financial Economics (3 September 2012)
Abstract
Market makers continuously set bid and ask quotes for the stocks they have under consideration. Hence they face a complex optimization problem in which their return, based on the bid-ask spread they quote and the frequency at which they indeed provide liquidity, is challenged by the price risk they bear due to their inventory. In this paper, we consider a stochastic control problem similar to the one introduced by Ho and Stoll and formalized mathematically by Avellaneda and Stoikov. The market is modeled using a reference price ...
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SIAM Journal on Financial Mathematics (2012)
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In Econophysics of Order-Driven Markets (2010)
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Liquidity Guide (2010)
Abstract
The availability of liquidity in Dark Pools raises questions about the adverse selection, the market impact and the opportunity cost of executions into such pools. With the new method of modelling and estimating market impact exposed here, it is possible to better quantify some of those effects at post trade. A characteristic of this point of view is that it conciliates the price formation process and the market impact measurement: the price formation process mainly comes from the market impact of ...
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SIAM J. Financial Mathematics, Vol. 2 (2011), pp. 404-438
Abstract
We propose a general framework for intraday trading based on the control of trading algorithms. Given a set of generic parameterized algorithms (which have to be specified by the controller ex-ante), our aim is to optimize the dates $(τ_i)_i$ at which they are launched, the length $(δ_i)_i$ of the trading period, and the value of the parameters $(\cal E_i)_i$ kept during the time interval $[τ_i,τ_i + δ_i)$. This provides the financial agent a decision tool for selecting which algorithm (and for ...
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Navigating Liquidity, Vol. 2 (March 2009)
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SIAM Journal on Financial Mathematics (Forthcoming) (2012)
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The Journal of Trading, Vol. 4, No. 3. (2009), pp. 40-46
Abstract
This article extends algorithmic trading to a strategic level detailing two examples: the balanced portfolio and the case of a mean-reversion proprietary trading strategy. It shows how to modify the usual Almgren-Chriss framework to obtain dedicated trading curves.Moreover, an algebraic approach that can help to solve explicitly a lot of strategic embeddings and a geometrical interpretation of the “averaging” processes that are typically encountered during such optimisations are presented. ...
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The trade (2009)
posted to finance trading
by lehalle
on 2009-03-28 12:20:17
Abstract
That alternative venues have succeeded in capturing an appreciable level of liquidity was illustrated in the recent study undertaken by CA Cheuvreux. This presents a new question however, says Charles-Albert Lehalle, head of quantitative research and Pilippe Guillot, head of trading and execution at CA Cheuvreux, ‘How is fragmentation changing the nature of liquidity itself and how can this evolution best be monitored? ...
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Navigating Liquidity, No. 1. (November 2008)
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In Liquidity guide (2009)
Abstract
The importance of intra-day volume curves in quantitative trading is well known as its combination with market risk through market impact is at the root of the balance to be found between trading rapidly (to avoid market risk) and trading slowly (to decrease market impact of the transactions) [Almgren and Chriss, 2000]. While a theoretical trading curve can be deduced from a market impact model and a deterministic volume curve, a practical trading curve has to take into account the variability of the volume curve [Lehalle, 2008]. ...
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Wilmott Magazine (November 2008)
Abstract
The progressive availability of automated access to exchanges and the continuously increasing capabilities of electronics (capture, storage and processing of information) allows to apply rigorous methods to optimise intra day trading. Aside from the robots dedicated to place orders and blindly slice, synchronise and spray them on fragmented markets (like cash and carry robots or first generation MiFID and Reg NMS Smart Order Routers), the combination of high frequency statistics, microstructure theory and stochastic control allows a new generation of auto ...
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Social Science Research Network Working Paper Series (24 June 2008)
Abstract
In this paper, we study the simplest discrete-time finite-maturity model in which default arises when the firm is not able to pay its debt obligation using the current cash-flow plus the corporate liquidity. An important distinction is made between liquidity and solvency of the firm. The corporate financial policy is simultaneously defined by the dividend rate (or policy), the coupon and the principal of the bond. In our model, the dividend rate both affects the default probability and the bondholders' recovery ...
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Le Courrier des statistiques, Vol. 117-119 (2006), pp. 79-84
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