Mathematical Market Microstructure: An Optimized Approach
Autumn Quarter
Instructor: Hongsong Chou
Syllabus
This course provides a balanced view on theoretical framework for solving optimal execution strategy design problems and practical aspects of implementing such strategies in liquid product trading. We will touch on both quadratic optimization framework on trade scheduling problems with parametric models of market impacts and dynamic programming approach to optimal executions with stochastic modeling of market microstructure processes, as well as some discussion on recent applications of machine learning and deep learning techniques to trading algorithm design. We will give brief overviews on market design and basic definitions of market microstructure variables. We will introduce the basic concept of “market microstructure time scale”. An overview of traditional market microstructure theories in the context of information-based price formation process will be given. We will review basic aspects of continuous-time stochastic control and optimization theories, with applications to two major financial problems: optimal execution strategy design and market making in liquid products.
This course counts towards the Trading concentration.