High-Frequency Trading

Inhaltsverzeichnis

Preface xi

Acknowledgments xiii

Chapter 1 How Modern Markets Differ from Those Past 1

Media, Modern Markets, and HFT 6

HFT as Evolution of Trading Methodology 7

What Is High-Frequency Trading? 13

What Do High-Frequency Traders Do? 15

How Many High-Frequency Traders Are There? 17

Major Players in the HFT Space 17

Organization of This Book 18

Summary 18

End-of-Chapter Questions 19

Chapter 2 Technological Innovations, Systems, and HFT 21

A Brief History of Hardware 21

Messaging 25

Software 33

Summary 35

End-of-Chapter Questions 35

Chapter 3 Market Microstructure, Orders, and Limit Order Books 37

Types of Markets 37

Limit Order Books 39

Aggressive versus Passive Execution 43

Complex Orders 44

Trading Hours 45

Modern Microstructure: Market Convergence and Divergence 46

Fragmentation in Equities 46

Fragmentation in Futures 50

Fragmentation in Options 51

Fragmentation in Forex 51

Fragmentation in Fixed Income 51

Fragmentation in Swaps 51

Summary 52

End-of-Chapter Questions 52

Chapter 4 High-Frequency Data 53

What Is High-Frequency Data? 53

How Is High-Frequency Data Recorded? 54

Properties of High-Frequency Data 56

High-Frequency Data Are Voluminous 57

High-Frequency Data Are Subject to the Bid-Ask Bounce 59

High-Frequency Data Are Not Normal or Lognormal 62

High-Frequency Data Are Irregularly Spaced in Time 62

Most High-Frequency Data Do Not Contain Buy-and-Sell Identifiers 70

Summary 73

End-of-Chapter Questions 74

Chapter 5 Trading Costs 75

Overview of Execution Costs 75

Transparent Execution Costs 76

Implicit Execution Costs 78

Background and Definitions 82

Estimation of Market Impact 85

Empirical Estimation of Permanent Market Impact 88

Summary 96

End-of-Chapter Questions 96

Chapter 6 Performance and Capacity of High-Frequency Trading Strategies 97

Principles of Performance Measurement 97

Basic Performance Measures 98

Comparative Ratios 106

Performance Attribution 110

Capacity Evaluation 112

Alpha Decay 116

Summary 116

End-of-Chapter Questions 116

Chapter 7 The Business of High-Frequency Trading 117

Key Processes of HFT 117

Financial Markets Suitable for HFT 121

Economics of HFT 122

Market Participants 129

Summary 130

End-of-Chapter Questions 130

Chapter 8 Statistical Arbitrage Strategies 131

Practical Applications of Statistical Arbitrage 133

Summary 144

End-of-Chapter Questions 144

Chapter 9 Directional Trading Around Events 147

Developing Directional Event-Based Strategies 148

What Constitutes an Event? 149

Forecasting Methodologies 150

Tradable News 153

Application of Event Arbitrage 155

Summary 163

End-of-Chapter Questions 163

Chapter 10 Automated Market Making--Naïve Inventory Models 165

Introduction 165

Market Making: Key Principles 167

Simulating a Market-Making Strategy 167

Naïve Market-Making Strategies 168

Market Making as a Service 173

Profitable Market Making 176

Summary 178

End-of-Chapter Questions 178

Chapter 11 Automated Market Making II 179

What's in the Data? 179

Modeling Information in Order Flow 182

Summary 193

End-of-Chapter Questions 193

Chapter 12 Additional HFT Strategies, Market Manipulation, and Market Crashes 195

Latency Arbitrage 196

Spread Scalping 197

Rebate Capture 198

Quote Matching 199

Layering 200

Ignition 201

Pinging/Sniping/Sniffing/Phishing 201

Quote Stuffing 201

Spoofing 202

Pump-and-Dump 202

Machine Learning 207

Summary 208

End-of-Chapter Questions 208

Chapter 13 Regulation 209

Key Initiatives of Regulators Worldwide 209

Summary 222

End-of-Chapter Questions 223

Chapter 14 Risk Management of HFT225

Measuring HFT Risk 225

Summary 244

End-of-Chapter Questions 244

Chapter 15 Minimizing Market Impact 245

Why Execution Algorithms? 245

Order-Routing Algorithms 247

Issues with Basic Models 258

Advanced Models 262

Practical Implementation of Optimal Execution Strategies 269

Summary 269

End-of-Chapter Questions 270

Chapter 16 Implementation of HFT Systems 271

Model Development Life Cycle 271

System Implementation 273

Testing Trading Systems 283

Summary 286

End-of-Chapter Questions 287

About the Author 288

About the Web Site 290

References 291

Index 303
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High-Frequency Trading

A Practical Guide to Algorithmic Strategies and Trading Systems

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Erscheinungsdatum

22.04.2013

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Gebundene Ausgabe

Erscheinungsdatum

22.04.2013

Verlag

John Wiley & Sons

Seitenzahl

320

Maße (L/B/H)

26/18,3/2,2 cm

Gewicht

805 g

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2nd Revised edition

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Englisch

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978-1-118-34350-0

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Die Leseprobe wird geladen.
  • High-Frequency Trading
  • Preface xi

    Acknowledgments xiii

    Chapter 1 How Modern Markets Differ from Those Past 1

    Media, Modern Markets, and HFT 6

    HFT as Evolution of Trading Methodology 7

    What Is High-Frequency Trading? 13

    What Do High-Frequency Traders Do? 15

    How Many High-Frequency Traders Are There? 17

    Major Players in the HFT Space 17

    Organization of This Book 18

    Summary 18

    End-of-Chapter Questions 19

    Chapter 2 Technological Innovations, Systems, and HFT 21

    A Brief History of Hardware 21

    Messaging 25

    Software 33

    Summary 35

    End-of-Chapter Questions 35

    Chapter 3 Market Microstructure, Orders, and Limit Order Books 37

    Types of Markets 37

    Limit Order Books 39

    Aggressive versus Passive Execution 43

    Complex Orders 44

    Trading Hours 45

    Modern Microstructure: Market Convergence and Divergence 46

    Fragmentation in Equities 46

    Fragmentation in Futures 50

    Fragmentation in Options 51

    Fragmentation in Forex 51

    Fragmentation in Fixed Income 51

    Fragmentation in Swaps 51

    Summary 52

    End-of-Chapter Questions 52

    Chapter 4 High-Frequency Data 53

    What Is High-Frequency Data? 53

    How Is High-Frequency Data Recorded? 54

    Properties of High-Frequency Data 56

    High-Frequency Data Are Voluminous 57

    High-Frequency Data Are Subject to the Bid-Ask Bounce 59

    High-Frequency Data Are Not Normal or Lognormal 62

    High-Frequency Data Are Irregularly Spaced in Time 62

    Most High-Frequency Data Do Not Contain Buy-and-Sell Identifiers 70

    Summary 73

    End-of-Chapter Questions 74

    Chapter 5 Trading Costs 75

    Overview of Execution Costs 75

    Transparent Execution Costs 76

    Implicit Execution Costs 78

    Background and Definitions 82

    Estimation of Market Impact 85

    Empirical Estimation of Permanent Market Impact 88

    Summary 96

    End-of-Chapter Questions 96

    Chapter 6 Performance and Capacity of High-Frequency Trading Strategies 97

    Principles of Performance Measurement 97

    Basic Performance Measures 98

    Comparative Ratios 106

    Performance Attribution 110

    Capacity Evaluation 112

    Alpha Decay 116

    Summary 116

    End-of-Chapter Questions 116

    Chapter 7 The Business of High-Frequency Trading 117

    Key Processes of HFT 117

    Financial Markets Suitable for HFT 121

    Economics of HFT 122

    Market Participants 129

    Summary 130

    End-of-Chapter Questions 130

    Chapter 8 Statistical Arbitrage Strategies 131

    Practical Applications of Statistical Arbitrage 133

    Summary 144

    End-of-Chapter Questions 144

    Chapter 9 Directional Trading Around Events 147

    Developing Directional Event-Based Strategies 148

    What Constitutes an Event? 149

    Forecasting Methodologies 150

    Tradable News 153

    Application of Event Arbitrage 155

    Summary 163

    End-of-Chapter Questions 163

    Chapter 10 Automated Market Making--Naïve Inventory Models 165

    Introduction 165

    Market Making: Key Principles 167

    Simulating a Market-Making Strategy 167

    Naïve Market-Making Strategies 168

    Market Making as a Service 173

    Profitable Market Making 176

    Summary 178

    End-of-Chapter Questions 178

    Chapter 11 Automated Market Making II 179

    What's in the Data? 179

    Modeling Information in Order Flow 182

    Summary 193

    End-of-Chapter Questions 193

    Chapter 12 Additional HFT Strategies, Market Manipulation, and Market Crashes 195

    Latency Arbitrage 196

    Spread Scalping 197

    Rebate Capture 198

    Quote Matching 199

    Layering 200

    Ignition 201

    Pinging/Sniping/Sniffing/Phishing 201

    Quote Stuffing 201

    Spoofing 202

    Pump-and-Dump 202

    Machine Learning 207

    Summary 208

    End-of-Chapter Questions 208

    Chapter 13 Regulation 209

    Key Initiatives of Regulators Worldwide 209

    Summary 222

    End-of-Chapter Questions 223

    Chapter 14 Risk Management of HFT225

    Measuring HFT Risk 225

    Summary 244

    End-of-Chapter Questions 244

    Chapter 15 Minimizing Market Impact 245

    Why Execution Algorithms? 245

    Order-Routing Algorithms 247

    Issues with Basic Models 258

    Advanced Models 262

    Practical Implementation of Optimal Execution Strategies 269

    Summary 269

    End-of-Chapter Questions 270

    Chapter 16 Implementation of HFT Systems 271

    Model Development Life Cycle 271

    System Implementation 273

    Testing Trading Systems 283

    Summary 286

    End-of-Chapter Questions 287

    About the Author 288

    About the Web Site 290

    References 291

    Index 303