lerc algorithmic trading project 1 purpose: give loyola undergraduates a means to learn, research,...
TRANSCRIPT
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LERC ALGORITHMIC TRADING PROJECT
Purpose: Give Loyola undergraduates a means to learn, research, and develop their own algorithmic trading strategies and implement them in a competitive setting. We want to prepare and market students for the modern financial market world.
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LERC ALGORITHMIC TRADING PROJECT
Automated/Algorithmic trading is the process where trading ideas are turned into mathematical models and coded into computer programs for systematic trading.
http://www.youtube.com/watch?v=aybe7iVHJ7E
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Agenda
Education
Session 1: Industry Introduction and Derivatives OverviewSession 2: Evolution of Financial Markets and Market Microstructure Session 3: Prerequisites for Algorithmic Trading System (ATS) Development and Selecting a PlatformSession 4: Review of the Scientific Method and the ATS Development ProcessSession 5: Formulation and Specification of a StrategySession 6: Backtesting and OptimizationSession 7: Implementation / Risk Management
Research
Session 1: WorkshopSession 2 Workshop
Competition - 2 weeks (10 days)
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Agenda
70% attendance + Submitting a Strategy Into the Competition =
Certificate of Completion
You do well in the competition or you show promise as an algorithmic trader? You will get an offer.
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Session 1: Industry Introduction and Derivatives Overview
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Let’s look at some job descriptions…
http://www.quantfinancejobs.com/jobs/quant-strategist.asp
http://www.analyticrecruiting.com/list_job.asp?job_id=17880&category=o5&title=Senior%2BAlgorithmic%2BTrading%2BQuant&JobKeywords=&JobCategories=Derivatives%2FFutures%2FFX%2B%26%2BStructured%2BTransactions%2C%2BQuantitative%2BFinance%2FFinancial%2BEn
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Mathematical finance…
http://www.youtube.com/watch?v=CE5pB5H1RJQ
We want to make money. But also, many people in this field are discovering (at least to some degree) insights into fundamental nature.
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The Derivatives Market
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What is a Derivative?
A contract that specifies the rights and obligations between two parties to receive or deliver future cash flows (or an exchange of other securities or assets) based on some future event.
They derive their value from the underlying asset class
For example, S&P 500 Futures, Corn Futures, IBM Call Options, Microsoft Put Options
Important to understand underlying asset class before using derivatives
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Derivative vs Non-Derivative: LeverageLeverage can be created through
options, futures, margin and other financial instruments. For example, say you have $1,000 to invest. This amount could be invested in 10 shares of Microsoft stock, but to increase leverage, you could invest the $1,000 in five options contracts. You would then control 500 shares instead of just 10.
Derivatives – More bang for buck (for better or worse). They are not for everyone.
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Why are Derivative Used?
Hedging
Speculating
Arbitrage
Access Remote Markets
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Two Types
Linear -Forwards -Futures -Swaps (generally)
Non-Linear -Vanilla/Exotic Options -Warrants -Credit Default Swaps
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Derivative Markets
Asset classes include interest rates, foreign exchange, equities, credit, commodities, weather, freight routes, energy, emissions, property
Can be Exchange-Traded or OTC (Over-the-counter)
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Exchange-Traded Derivatives
US Equity options- CBOE (1973)- Amex- P-Coast- Philly- ISE- BOX
US Futures- CME (1874)- CBOT (1848)- NYMEX- NYBOT- KCBOT- MGE
…
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Exchange-Traded DerivativesOpen Outcry
Traditional method of public auction for making bids and offers in the trading pits of the exchange.
Involves shouting and the use of hand
signals to communicate information about buy and sell orders
http://www.youtube.com/watch?v=S43zvtdJcxI
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Electronic Trading
Brings together buyers and sellers through an electronic trading platform to create a virtual marketplace known as an electronic communication network (ECN). Example - CME’s Globex.
Implications: Reduced cost of transactions, greater liquidity, increased competition, higher transparency, and tighter spreads.
Has led to a growth in algorithmic trading (covered later).
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OTC Derivatives Market
Off-exchange derivatives market. Market can be accessed via special electronic crossing networks or direct contact between market participants.
Usually used by traders/treasurers/fund managers of financial institutions
Dark liquidity pools: Liquidity that is not openly available to the market.
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OTC Derivatives Market
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END SESSION 1