tales from the trenches hasan amjad · 2017-03-08 · sell any investment, or otherwise transact in...

PRIVATE AND CONFIDENTIAL. NOT TO BE DISTRIBUTED

AUTHORISED AND REGULATED BY THE FINANCIAL CONDUCT AUTHORITY

01 MARCH 2017

TALES FROM THE TRENCHES HASAN AMJAD

© Cantab – Part of GAM Systematic. Authorised and Regulated by the Financial Conduct Authority.

Disclaimer

2

This document is for information only and does not constitute an offer or recommendation to buy or sell any investment, or otherwise transact in any investments. Past performance is not necessarily a guide to the future. Whilst all reasonable care has been taken to ensure that the stated facts are accurate and opinions are fair and reasonable neither Cantab Capital Partners LLP nor any of its members, partners or employees shall be responsible in any way for the contents of this document. It is not, under any circumstances, intended for distribution to the general public. All opinions and estimates included in the document are subject to change without notice and Cantab Capital Partners LLP is under no obligation to update or revise information contained in the document. Cantab Capital Partners LLP disclaims any liability for any loss, damage, costs or expenses (including direct, indirect, special and consequential) howsoever arising which any person may suffer or incur as a result of viewing or utilising any information included in this document. Cantab Capital Partners LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom (Firm Reference No 455487). Registered in England No. OC317557. Registered office: City House, 126-130 Hills Road, Cambridge, CB2 1RE, UK. © Cantab Capital Partners LLP


Introduction

3

Cantab Capital is a multi-asset fund manager, with in-house execution.


Presentation

4

Two modelling problems looking for a good home

■ Not from cash equity

■ But from widely traded markets

■ But concrete and simple to state

■ But lacking an elegant solution


Presentation

5

Two modelling problems looking for a good home

■ Not from cash equity

■ But from widely traded markets

■ But concrete and simple to state

■ But lacking an elegant solution

And a qualitatively different problem, with a solution


OTC FX price action

6

Price

Time


OTC FX price action – 40x zoom

7



8



9



10

Free money

for 10ms!



11

Free money

for 10ms!



12

Free money

for 10ms!

CANTAB to broker

A: “I’ll take that

bid”

CANTAB to broker

B: “I’ll take that

offer”



13

Free money

for 10ms!

CANTAB to broker


bid”

CANTAB to broker


offer”

Broker A to

CANTAB: “Deal!”



14

Free money

for 10ms!

CANTAB to broker


bid”

CANTAB to broker


offer”

Broker A to

CANTAB: “Deal!”

Broker B to

CANTAB: “No deal”


The Problem

15

Free money

for 10ms!

CANTAB to broker


bid”

CANTAB to broker


offer”

Broker A to

CANTAB: “Deal!”

Broker B to

CANTAB: “No deal”


Futures market price action

16


Typical top of book in a futures market

17



18

Number of lots on offer



19


Number of lots on bid



20


Number of lots on bid

Typical matching rule: variations on “price-time”


Price action(?) in a different futures market

21



22

“one-tick” market



23

“one-tick” market

Matching rule: variations on “pro-rata”


Most of the price information not found in the price

24



25

“buy pressure”



26

“buy pressure”

“sell pressure”



27

“buy pressure”

“sell pressure”

“buy pressure”



28

“buy pressure”

“sell pressure”

“buy pressure”

“Bid-offer imbalance” looks like a good indicator


The Problem

29


Price action in a heavily traded futures contract

30


Unorthodox price moves

31


Unusually high trading volume

32


Algo disaster

33

6 seconds


Lifecycle of a simple order

34

initial state

await accept

place order



35

initial state

await accept

await accept or cancel

active

place order

accepted

cancel request rejected

aborted



36

finished

initial state

await accept


active

active, await cancel

place order

final fill accepted

rejected cancel request

filled

cancel request

aborted



37

finished

initial state

await accept


active


place order

final fill accepted

accepted


cancelled

filled

cancel request

aborted



38

finished

initial state

await accept


active


place order

final fill

final fill accepted

accepted

cancelled


cancelled

filled

filled

cancel request

aborted


Model Checking

39

finished

initial state

await accept


active


place order

final fill

final fill accepted

accepted

cancelled


cancelled

filled

filled

cancel request

aborted

Linear Temporal Logic: “Precise provable statements about time”


Model Checking

40

finished

initial state

await accept


active


place order

final fill

final fill accepted

accepted

cancelled


cancelled

filled

filled

cancel request

aborted

Linear Temporal Logic: F(finished)

“In the future, we will be finished”


Model Checking

41

finished

initial state

await accept


active


place order

final fill

final fill accepted

accepted

cancelled


cancelled

filled

filled

cancel request

aborted

Linear Temporal Logic: F(finished)

“In the future, we will be finished”


Model Checking

42

finished

initial state

await accept


active


place order

final fill

final fill accepted

accepted

cancelled


cancelled

filled

filled

cancel request

aborted

Linear Temporal Logic: G(F(finished))

“Globally in the future, we will be finished”


Model Checking

43

finished

initial state

await accept


active


place order

final fill

final fill accepted

accepted

cancelled


cancelled

filled

filled

cancel request

aborted

Linear Temporal Logic: G(F(finished))

“Globally in the future, we will be finished”


Model checking

44

• Can deal with millions or even infinite number of states


Model checking

45

• Can deal with millions or even infinite number of states • Provably covers all execution paths (unlike standard tests)


Model checking

46

• Can deal with millions or even infinite number of states • Provably covers all execution paths (unlike standard tests) • Extensions

1. Boolean logic: G (order → F (accepted | rejected | cancelled ) ) 2. Arithmetic: G (accepted → 𝑓𝑖𝑙𝑙𝑠 + 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 ≤ 𝑝𝑎𝑟𝑒𝑛𝑡 𝑜𝑟𝑑𝑒𝑟) 3. Concrete time: G(𝑜𝑟𝑑𝑒𝑟 𝑡𝑖𝑚𝑒 − 𝑡𝑖𝑐𝑘 𝑡𝑖𝑚𝑒 ≤ 𝑙𝑎𝑡𝑒𝑛𝑐𝑦 𝑡ℎ𝑟𝑒𝑠ℎ𝑜𝑙𝑑)


Model checking

47




Model checking

48




Model checking

49




Model checking

50


1. Boolean logic: G (order → F (accepted | rejected | cancelled ) ). 2. Arithmetic: G (accepted → 𝑓𝑖𝑙𝑙𝑠 + 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 ≤ 𝑝𝑎𝑟𝑒𝑛𝑡 𝑜𝑟𝑑𝑒𝑟) 3. Concrete time: G(𝑜𝑟𝑑𝑒𝑟 𝑡𝑖𝑚𝑒 − 𝑡𝑖𝑐𝑘 𝑡𝑖𝑚𝑒 ≤ 𝑙𝑎𝑡𝑒𝑛𝑐𝑦 𝑡ℎ𝑟𝑒𝑠ℎ𝑜𝑙𝑑)

• Does not require executing the computer code


Model checking

51


1. Boolean logic: G (order → F (accepted | rejected | cancelled ) ). 2. Arithmetic: G (accepted → 𝑓𝑖𝑙𝑙𝑠 + 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 ≤ 𝑝𝑎𝑟𝑒𝑛𝑡 𝑜𝑟𝑑𝑒𝑟) 3. Concrete time: G(𝑜𝑟𝑑𝑒𝑟 𝑡𝑖𝑚𝑒 − 𝑡𝑖𝑐𝑘 𝑡𝑖𝑚𝑒 ≤ 𝑙𝑎𝑡𝑒𝑛𝑐𝑦 𝑡ℎ𝑟𝑒𝑠ℎ𝑜𝑙𝑑)

• Does not require executing the computer code

There are caveats and assumptions. Talk to us!


Fin

■ Two old(-ish) problems

□ “Last Look” in OTC FX

□ Price moves in pro-rata “one tick” markets

■ One new(-ish) solution: Quality assurance using “model checking”

Any takers?

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tales from the trenches hasan amjad · 2017-03-08 · sell any investment, or otherwise transact in...

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