Financial Markets and Trading - An Introduction to Market Microstructure and Trading Strategies

Informationen zum Autor DR. ANATOLY B. SCHMIDT holds a master of science and PhD in physics from University of Latvia. He has been working as a quantitative analyst in the financial industry since 1997. Dr. Schmidt has published several papers on agent-based modeling of financial markets, market microstructure, and algorithmic trading as well as a book entitled Quantitative Finance for Physicists: An Introduction . He also teaches in the Financial Engineering Program of Stevens Institute of Technology. Klappentext Financial Markets and Trading Over the last decade, the financial landscape has undergone a significant transformation?shaped by the forces of technology, globalization, and market innovations to name a few. In order to operate effectively in today's markets, you need more than just the motivation to succeed, you need a firm understanding of how modern financial markets work and what professional trading is really about. Nobody understands this better than author Anatoly Schmidt, and in his new book, he puts these topics in perspective by providing you with an informative overview of modern financial markets, and the theoretical concepts of market microstructure, as well as an engaging assessment of the methods used in deriving and back-testing trading strategies. Divided into three comprehensive parts, this reliable resource offers a balance between the theoretical aspects of market microstructure and trading strategies that may be more relevant for practitioners. Part One details the modern financial markets for equities, foreign exchange, and fixed income?starting with an introduction to various types of traders, orders, and market structures and then presenting the major market microstructure models. Some important empirical properties of modern equity and foreign exchange markets are also described. Part Two addresses the basics of market dynamics, including statistical distributions, dynamics, and volatility of returns?discussing the efficient market hypothesis and possible predictability of returns as well as introducing the concepts of agent-based modeling of financial markets. Part Three is devoted entirely to trading, and offers a summary of approaches used in technical analysis and statistical arbitrage as well as a more detailed description of trading performance criteria and back-testing strategies. Ideas used in optimal order execution, such as optimal order slicing and the taker's dilemma, are also examined. Two appendices are also included to support the main material in this book. Appendix A provides reference material on basic statistical notions and statistical distributions that are frequently used in finance. And Appendix B describes the main concepts of time series analysis: autoregressive and moving average models, trends and seasonality, and multivariate models. If you're unprepared to enter today's markets you will underperform. But with Financial Markets and Trading as your guide, you'll quickly discover what it takes to make it in this competitive field. Zusammenfassung An informative guide to market microstructure and trading strategies Over the last decade, the financial landscape has undergone a significant transformation, shaped by the forces of technology, globalization, and market innovations to name a few. Inhaltsverzeichnis Preface ix Acknowledgments xiii Part One Market Microstructure 1 Chapter 1 Financial Markets: Traders, Orders, and Systems 3 Traders 3 Orders 5 The Bid/Ask Spread 7 Liquidity 9 Market Structures 9 Continuous Order-Driven Markets 10 Oral Auctions 11 Call Auctions 12 Quote-Driven Markets and Hybrid Markets 13 Chapter 2 Modern Financial Markets 15 The U.S. Equity Markets 15 The NYSE 15 Nasdaq 1...

List of contents

Preface ix
 
Acknowledgments xiii
 
PART ONE
Market Microstructure 1
 
CHAPTER 1
Financial Markets: Traders, Orders, and Systems 3
 
Traders 3
 
Orders 5
 
The Bid/Ask Spread 7
 
Liquidity 9
 
Market Structures 9
 
Continuous Order-Driven Markets 10
 
Oral Auctions 11
 
Call Auctions 12
 
Quote-Driven Markets and Hybrid Markets 13
 
CHAPTER 2
Modern Financial Markets 15
 
The U.S. Equity Markets 15
 
The NYSE 15
 
NASDAQ 16
 
Alternative Trading Systems 17
 
European Equity Markets 18
 
Spot FX Market 19
 

The U.S. Fixed Income Markets 21
 
High-Frequency Trading 22
 
CHAPTER 3
Inventory Models 26
 
Risk-Neutral Models 26
 
The Garman's Model 26
 
Amihud-Mendelson Model 29
 
Models with Risk Aversion 29
 
What Is Risk Aversion? 29
 
The Stoll's Model 31
 
CHAPTER 4
Market Microstructure: Information-Based Models 35
 
Kyle's Model 35
 
One-Period Model 35
 
Multi-Period and Multi-Insider Models 38
 
Glosten-Milgrom Model 39
 
Further Developments 41
 
CHAPTER 5
Models of the Limit-Order Markets 44
 
The CMSW Model 44
 
The Parlour Model 46
 
The Foucault Model 47
 
Equilibrium at Zero Volatility 48
 
Volatility Effect 49
 
New Developments 50
 
CHAPTER 6
Empirical Market Microstructure 53
 
Roll's Model 53
 
The Glosten-Harris Model 55
 
Structural Models 56
 
Recent Empirical Findings 58
 
Equity Markets 58
 
Global FX Spot Market 60
 
PART TWO
Market Dynamics 63
 
CHAPTER 7
Statistical Distributions and Dynamics of Returns 65
 
Prices and Returns 65
 
The Efficient Market Hypothesis 66
 
Random Walk and Predictability of Returns 68
 
Recent Empirical Findings 69
 
Fractals in Finance 72
 
CHAPTER 8
Volatility 75
 
Basic Notions 75
 
Conditional Heteroskedasticity 77
 
Realized Volatility 79
 
Market Risk Measurement 81
 
CHAPTER 9
Agent-Based Modeling of Financial Markets 86
 
Adaptive Equilibrium Models 87
 
Non-Equilibrium Price Models 89
 
The Observable-Variables Model 91
 
Modeling Efficiency of Technical Trading 94
 
Modeling the Birth of a Two-Sided Market 95
 
PART THREE
Trading Strategies 101
 
CHAPTER 10
Technical Trading Strategies 103
 
Trend Strategies 105
 
Filter Rules 105
 
Moving-Average Rules 106
 
Channel Breakouts 107
 
Momentum and Oscillator Strategies 109
 
Complex Geometric Patterns 113
 
CHAPTER 11
Arbitrage Trading Strategies 117
 
Hedging Strategies 118
 
Pair Trading 120
 
Cointegration and Causality 121
 
Pair Selection 123
 
Arbitrage Risks 125
 
CHAPTER 12
Back-Testing of Trading Strategies 129
 
Performance Measures 131
 
Resampling Techniques 133
 
Bootstrap 133
 
Markov Chain Monte Carlo 135
 
Random Entry Protocol 136
 
Comparing Trading Strategies 137
 
Bootstrap Reality Check 138
 
New Developments 139
 
CHAPTER 13
Execution Strategies 142
 
Benchmark-Driven Schedules 143
 
Cost-Driven Schedules 145
 
Risk-Neutral Framework 145
 
Risk-Averse Framework 147
 
The Taker's Dilemma 151
 
The Random Walk Mode

Product details

• Authors: Schmidt, A Schmidt, Anatoly Schmidt, Anatoly B Schmidt, Anatoly B. Schmidt, SCHMIDT ANATOLY B, Schmidt Anatoly B.
• Publisher: Wiley, John and Sons Ltd
• Languages: English
• Product format: Hardback
• Released: 30.09.2011
• EAN: 9780470924129
• ISBN: 978-0-470-92412-9
• No. of pages: 208
• Series: Wiley Finance; Wiley Finance Editions; The Wiley Finance Series; Wiley Finance; Wiley Finance Editions
• Subjects: Social sciences, law, business > Business > Business administration; trading, Börsenhandel, Finance & Investments, Finanz- u. Anlagewesen