Algorithmic and High-Frequency Trading

A straightforward guide to the mathematics of algorithmic trading that reflects cutting-edge research.

Álvaro Cartea (Author), Sebastian Jaimungal (Author), José Penalva (Author)

9781107091146, Cambridge University Press

Hardback, published 6 August 2015

356 pages, 5 b/w illus. 75 colour illus. 35 tables
25.5 x 18.2 x 2 cm, 0.87 kg

'This textbook is a welcome addition to the literature on algorithmic trading and the high-frequency markets. It fills a significant gap by bringing cutting-edge mathematical models to bear on the analysis and implementation of practical algorithms. Using a unique blend of microstructure theory, financial data analysis, and mathematical models, the authors walk the reader through the maze of the high-frequency markets, detailing how the exchanges work, and what kind of data they generate. Trading algorithms and their practical implementations are described in easy-to-understand prose, and illustrated with enlightening simulations. This text is ideal for graduate students and researchers in financial mathematics and engineering, as well as for practitioners already working in the field.' René Carmona, Princeton University

The design of trading algorithms requires sophisticated mathematical models backed up by reliable data. In this textbook, the authors develop models for algorithmic trading in contexts such as executing large orders, market making, targeting VWAP and other schedules, trading pairs or collection of assets, and executing in dark pools. These models are grounded on how the exchanges work, whether the algorithm is trading with better informed traders (adverse selection), and the type of information available to market participants at both ultra-high and low frequency. Algorithmic and High-Frequency Trading is the first book that combines sophisticated mathematical modelling, empirical facts and financial economics, taking the reader from basic ideas to cutting-edge research and practice. If you need to understand how modern electronic markets operate, what information provides a trading edge, and how other market participants may affect the profitability of the algorithms, then this is the book for you.

Preface
How to read this book
Part I. Microstructure and Empirical Facts: 1. Electronic markets and the limit order book
2. A primer on the microstructure of financial markets
3. Empirical and statistical evidence – prices and returns
4. Empirical and statistical evidence – activity and market quality
Part II. Mathematical Tools: 5. Stochastic optimal control and stopping
Part III. Algorithmic and High-Frequency Trading: 6. Optimal execution with continuous trading I
7. Optimal execution with continuous trading II
8. Optimal execution with limit and market orders
9. Targeting volume
10. Market making
11. Pairs trading and statistical arbitrage strategies
12. Order imbalance
Appendix A. Stochastic calculus for finance
Bibliography
Glossary
Subject index.

Subject Areas: Finance [KFF], Economic statistics [KCHS], Economics [KC]