Algorithmic and High-Frequency Trading

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 the cutting edge of 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.

Author’s Introduction:

This book is organised into three parts that take the reader from the workings of electronic exchanges to the economics behind them, then to the relevant mathematics, and finally to models and problems of algorithmic trading.

• Part I starts with a description of the basic elements of electronic markets and the main ways in which people participate in the market: as active traders exploiting an informational advantage to profit from possibly fleeting profit opportunities, or as market makers, simultaneously offering to buy and sell at advantageous prices.
• Part II develops the mathematical tools for the analysis of trading algorithms. The chapter on stochastic optimal control and stopping provides a pragmatic approach to material which is less standard in financial mathematics textbooks. It is also written so that readers without previous exposure to these techniques equip themselves with the necessary tools to understand the mathematical models behind some algorithmic trading strategies.
• Part III of the book delves into the modelling of algorithmic trading strategies. The first two chapters are concerned with optimal execution strategies where the agent must liquidate or acquire a large position over a pre-specified window and trades continuously using only market orders.

Contents:

• Electronic Markets and the limit Order Book
• A Primer on the Microstrncture of Financial Markets
• Empirical and Statistical Evidence: Prices and Returns
• Empirical and Statistical Evidence: Activity and Market Quality
• Stochastic Optimal Control and Stopping
• Optimal Execution with Continuous Trading
• Optimal Exerntioro with Limit and Market Orders
• Targeting Volume
• Market Making
• Pairs Trading and Statistical Arbitrage Strategies
• Order Imbalance

Algorithmic and High-Frequency Trading By José Penalva, Sebastian Jaimungal, and Álvaro Cartea pdf