Mathematical Market Microstructure: An Optimized Approach
Autumn Quarter
Instructor: Hongsong Chou
Syllabus
This course is an introduction to the mathematical theory of market microstructure, with key applications in solving optimal execution problems with inventory management. We will start with discussions of market design, global market structure, algorithmic trading, and market-making practices. We will then present traditional market microstructure theory in the context of dealer inventory management and information-based quoting and pricing. The latest literature about realized volatility calculations using high-frequency data will be reviewed. The subject of order book dynamics research with applications to market impact modeling will be discussed as well. Continuous-time stochastic control theory with applications to execution algorithm development and market-making strategy design will be reviewed and discussed. The course also will go through some latest developments in algorithm and strategy development using machine learning techniques. The main goal of this course is to provide a clear discussion of key mathematical treatments and their practical applications of market microstructure problems related to price discovery and utility optimization for certain transaction processes with non-trivial transaction cost present.
This course counts towards the Trading and Risk concentration.