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Financial Markets and Trading: An Introduction to Market Microstructure and Trading Strategies

Book Description

An informative guide to market microstructure and trading strategies

Over the last decade, the financial landscape has undergone a significant transformation, shaped by the forces of technology, globalization, and market innovations to name a few. In order to operate effectively in today's markets, you need more than just the motivation to succeed, you need a firm understanding of how modern financial markets work and what professional trading is really about. Dr. Anatoly Schmidt, who has worked in the financial industry since 1997, and teaches in the Financial Engineering program of Stevens Institute of Technology, puts these topics in perspective with his new book.

Divided into three comprehensive parts, this reliable resource offers a balance between the theoretical aspects of market microstructure and trading strategies that may be more relevant for practitioners. Along the way, it skillfully provides an informative overview of modern financial markets as well as an engaging assessment of the methods used in deriving and back-testing trading strategies.

  • Details the modern financial markets for equities, foreign exchange, and fixed income

  • Addresses the basics of market dynamics, including statistical distributions and volatility of returns

  • Offers a summary of approaches used in technical analysis and statistical arbitrage as well as a more detailed description of trading performance criteria and back-testing strategies

  • Includes two appendices that support the main material in the book

If you're unprepared to enter today's markets you will underperform. But with Financial Markets and Trading as your guide, you'll quickly discover what it takes to make it in this competitive field.

Table of Contents

  1. Cover Page
  2. Title Page
  3. Preface
  4. Copyright
  5. Contents
  6. Preface
  7. Acknowledgments
  8. PART One: Market Microstructure
    1. CHAPTER 1: Financial Markets: Traders, Orders, and Systems
      1. TRADERS
      2. ORDERS
      3. THE BID/ASK SPREAD
      4. LIQUIDITY
      5. MARKET STRUCTURES
    2. CHAPTER 2: Modern Financial Markets
      1. THE U.S. EQUITY MARKETS
      2. THE U.S. FIXED INCOME MARKETS
      3. HIGH-FREQUENCY TRADING
    3. CHAPTER 3: Inventory Models
      1. RISK-NEUTRAL MODELS
      2. MODELS WITH RISK AVERSION
    4. CHAPTER 4: Market Microstructure: Information-Based Models
      1. KYLE'S MODEL
      2. GLOSTEN-MILGROM MODEL
      3. FURTHER DEVELOPMENTS
    5. CHAPTER 5: Models of the Limit-Order Markets
      1. THE CMSW MODEL
      2. THE PARLOUR MODEL
      3. THE FOUCAULT MODEL
      4. NEW DEVELOPMENTS
    6. CHAPTER 6: Empirical Market Microstructure
      1. ROLL'S MODEL
      2. THE GLOSTEN-HARRIS MODEL
      3. STRUCTURAL MODELS
      4. RECENT EMPIRICAL FINDINGS
  9. PART Two: Market Dynamics
    1. CHAPTER 7: Statistical Distributions and Dynamics of Returns
      1. PRICES AND RETURNS
      2. THE EFFICIENT MARKET HYPOTHESIS
      3. RANDOM WALK AND PREDICTABILITY OF RETURNS
      4. RECENT EMPIRICAL FINDINGS
      5. FRACTALS IN FINANCE
    2. CHAPTER 8: Volatility
      1. BASIC NOTIONS
      2. CONDITIONAL HETEROSKEDASTICITY
      3. REALIZED VOLATILITY
      4. MARKET RISK MEASUREMENT
    3. CHAPTER 9: Agent-Based Modeling of Financial Markets
      1. ADAPTIVE EQUILIBRIUM MODELS
      2. NON-EQUILIBRIUM PRICE MODELS
      3. THE OBSERVABLE-VARIABLES MODEL
      4. MODELING EFFICIENCY OF TECHNICAL TRADING
      5. MODELING THE BIRTH OF A TWO-SIDED MARKET
  10. PART Three: Trading Strategies
    1. CHAPTER 10: Technical Trading Strategies
      1. TREND STRATEGIES
      2. MOMENTUM AND OSCILLATOR STRATEGIES
      3. COMPLEX GEOMETRIC PATTERNS
    2. CHAPTER 11: Arbitrage Trading Strategies
      1. HEDGING STRATEGIES
      2. PAIR TRADING
      3. ARBITRAGE RISKS
    3. CHAPTER 12: Back-Testing of Trading Strategies
      1. PERFORMANCE MEASURES
      2. RESAMPLING TECHNIQUES
      3. COMPARING TRADING STRATEGIES
    4. Chapter 13: Execution Strategies
      1. BENCHMARK-DRIVEN SCHEDULES
      2. COST-DRIVEN SCHEDULES
      3. THE TAKER'S DILEMMA
  11. APPENDIX A: Probability Distributions
    1. BASIC NOTIONS
    2. FREQUENTLY USED DISTRIBUTIONS
    3. STABLE DISTRIBUTIONS AND SCALE INVARIANCE
  12. APPENDIX B: Elements of Time Series Analysis
    1. THE AUTOREGRESSIVE MODEL
    2. THE MOVING AVERAGE MODEL
    3. THE ARMA MODEL
    4. TRENDS AND SEASONALITY
    5. MULTIVARIATE TIME SERIES
  13. Notes
  14. References
  15. About the Author
  16. Index