1. Empirical market microstructure
High frequency trading activity modeling
Zero intelligent agent based models
Perm State National Research
University
Perm R group
r-group.mifit.ru
ITE.LAB “MathEconomics” Open Course
Russia, Perm, 21 November 2013
Arbuzov V.
arbuzov@prognoz.ru

2. Empirical market microstructure

3. Empirical market microstructure

4. Empirical market microstructure

5. Empirical market microstructure

6. Empirical market microstructure
The car is moving or standing ?

7. Empirical market microstructure
The car is moving or standing ?

8. Empirical market microstructure
The car is moving or standing ?

9. Empirical market microstructure
The car is moving or standing ?
?

10. Empirical market microstructure

11. Empirical market microstructure
Types of orders
Market orders
Limit orders

12. Empirical market microstructure

13. Empirical market microstructure

14. Empirical market microstructure

15. Empirical market microstructure
15
Long memory in order flow
*
*

16. Empirical market microstructure
Diagonal effect [Biais et al (1995)]

17. Empirical market microstructure
Types of agent in financial markets:
• Fundamental Traders
• Buy and Hold Traders
• Swing Traders
• Scalp Trading
• Arbitrageurs
• Technical analysis traders
• Break-out Traders
• Intuitive Traders
• High Frequency Traders
• News Traders

18. High frequency trading activity modeling
HFTs create exponential
growth of data in
financial markets
Number of orders (left) and number of trades (right) from 2008 (violet) to 2012 (red color) on USA exchenges
Source: NANEX, LLC (http://www.nanex.net/aqck/2817.HTML)

19. High frequency trading activity modeling
What is HFT?
Extraordinarily high-speed and sophisticated computer programs
High message traffic
Low latency
Near-flat end-of-day net positions
Short time frame for trading for establishing and liquidating positions
Proprietary trading
http://www.youtube.com/watch?v=GbGJsMJSWWk

20. High frequency trading activity modeling

21. High frequency trading activity modeling
Delay in quotes in USA market
Source: NANEX, LLC (http://www.nanex.net/aqck/2613.html)

22. High frequency trading activity modeling
Источник: NANEX, LLC (http://www.nanex.net/Research/didnothappen/didnothappen.html)

23. High frequency trading activity modeling
Источник: NANEX, LLC (http://www.nanex.net/aqck/2715.html)

24. High frequency trading activity modeling

25. Zero intelligent agent based models
Zero intelligent agent based models
We don’t know what “intelligence” or
“rationality” are; but we do know how to
exclude them
ZI modeling can be a foundation to which
more formal models of learning are added…
Daniels model (2003)

26. Estimation of parameters

27. Estimation of spread

28. Zero intelligent agent based models
Simulation results
Daniels model

29. Zero intelligent agent based models
Simulation results (Daniels model)

30. Zero intelligent agent based models
Mike-Farmer model (2008)

31. Zero intelligent agent based models
Simulation results (Mike-Farmer model)