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Volatility and Liquidity Trading Oxford- Volatility and Liquidity Trading Princeton Motivation Market Ren e Carmona and Z. Joseph Yang Impact Modeling Liquidity Bendheim Center for Finance & Trading Game Dept. of ORFE,

Volatility and Liquidity Trading Oxford- Volatility and Liquidity Trading Princeton Motivation Market Ren´ e Carmona and Z. Joseph Yang Impact Modeling Liquidity Bendheim Center for Finance & Trading Game Dept. of ORFE, Princeton University Summary References March 28th, 2009 Oxford-Princeton Volatility and Liquidity Trading
Outline Volatility and 1 Motivation Liquidity Trading 2 Market Impact Modeling Oxford- Princeton The Permanent Component is Necessarily Linear Time-Homogeneity is Obtained By Subordinating in Motivation Volume-Time Market Impact Modeling 3 Formulation of the Liquidity Trading Game Liquidity The Stochastic Optimal Control Problem for Each Trading Game Player Summary The Nash-Equilibrium for the Liquidity Trading Game References Numerical Analysis of the NE 4 Summary and Ongoing Work Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
The Liquidity Nature of the Financial Markets Volatility and Liquidity Liquidity Risk Trading Asset Liquidity / Market Liquidity Oxford- Princeton inventory approach/information-asymmetry approach empirical data modeling approach Motivation optimal control theory approach Market game theoretic approach Impact Modeling Funding Liquidity Liquidity margin requirement shift and illiquidity spiral Trading Game capital structure analysis etc. Summary References Market Risk Credit Risk Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading The crucial role of understanding the Liquidity Nature of a Oxford- Princeton financial market, for both market participants and regulators alike Motivation Market Black Monday in 1987 Impact Modeling LTCM and sovereign bond crisis in 1998 Liquidity Trading Riot of subprime credit products in 2007 Game the collapse of Amaranth in 2006, and so on Summary References Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading The crucial role of understanding the Liquidity Nature of a Oxford- Princeton financial market, for both market participants and regulators alike Motivation Market Black Monday in 1987 Impact Modeling LTCM and sovereign bond crisis in 1998 Liquidity Trading Riot of subprime credit products in 2007 Game the collapse of Amaranth in 2006, and so on Summary References Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading The crucial role of understanding the Liquidity Nature of a Oxford- Princeton financial market, for both market participants and regulators alike Motivation Market Black Monday in 1987 Impact Modeling LTCM and sovereign bond crisis in 1998 Liquidity Trading Riot of subprime credit products in 2007 Game the collapse of Amaranth in 2006, and so on Summary References Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading The crucial role of understanding the Liquidity Nature of a Oxford- Princeton financial market, for both market participants and regulators alike Motivation Market Black Monday in 1987 Impact Modeling LTCM and sovereign bond crisis in 1998 Liquidity Trading Riot of subprime credit products in 2007 Game the collapse of Amaranth in 2006, and so on Summary References Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading The crucial role of understanding the Liquidity Nature of a Oxford- Princeton financial market, for both market participants and regulators alike Motivation Market Black Monday in 1987 Impact Modeling LTCM and sovereign bond crisis in 1998 Liquidity Trading Riot of subprime credit products in 2007 Game the collapse of Amaranth in 2006, and so on Summary References Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading Intension/activity of buying and selling does affect the Oxford- market price of an asset Princeton Trading tactics inspired by the liquidity rationale and trend Motivation of the market Market optimal execution for a single player Impact Modeling Bertsimas & Lo, 98; Almgren & Chriss, 01; Almgren 03 Liquidity strategic play between multiple players Trading Game Brunnermeier & Pedersen, 05 Summary Carlin, Lobo, Viswanathan, 07 References Schoneborn & Schied, 07 Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading Intension/activity of buying and selling does affect the Oxford- market price of an asset Princeton Trading tactics inspired by the liquidity rationale and trend Motivation of the market Market optimal execution for a single player Impact Modeling Bertsimas & Lo, 98; Almgren & Chriss, 01; Almgren 03 Liquidity strategic play between multiple players Trading Game Brunnermeier & Pedersen, 05 Summary Carlin, Lobo, Viswanathan, 07 References Schoneborn & Schied, 07 Oxford-Princeton Volatility and Liquidity Trading
Volatility and Liquidity Trading Intension/activity of buying and selling does affect the Oxford- market price of an asset Princeton Trading tactics inspired by the liquidity rationale and trend Motivation of the market Market optimal execution for a single player Impact Modeling Bertsimas & Lo, 98; Almgren & Chriss, 01; Almgren 03 Liquidity strategic play between multiple players Trading Game Brunnermeier & Pedersen, 05 Summary Carlin, Lobo, Viswanathan, 07 References Schoneborn & Schied, 07 Oxford-Princeton Volatility and Liquidity Trading

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