11 votes
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How to make a trading universe of liquid futures contracts

Systematically finding most liquid futures instruments Can we put together a better list than the academic articles? Yes! The lists in existing publications [1, 2] are great, but fall slightly short ...
databento's user avatar
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10 votes
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What are some currently open problems in market microstructure

They are a lot of open problems in market microstructure. To have an idea of the whole landscape, have a look at Market Microstructure in Practice, 2nd Edition, by L and Laruelle. I would split them ...
lehalle's user avatar
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7 votes
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What are the quantitative requirements to distinguish between asset classes?

Defining asset classes from a quantitative perspective is an interesting question that is not really addressed "officially" as far as I know. Let's try to write some requirements you want ...
lehalle's user avatar
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6 votes
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Implied volatility of hypothetical options market

The three ways to manufacture pseudo-implied vols I know of are: Find a related underlying and, even if only few options trade on it, 'borrow' its implied vols. Compute statistical vol from ...
ir7's user avatar
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5 votes
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What makes open-outcry preferable to electronic trading and what are its consequences?

The better price will come from two live traders (one on each side of the trade) willing to take a smaller percentage commission for a large block trade. For example, if a trader's average commission ...
amdopt's user avatar
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4 votes
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Bond Valuation and liquidity

In practice, this equation won't even hold for the vast majority of bonds in the US Treasury market, which is the most liquid government bond market. The chart below shows the spreads of US ...
Helin's user avatar
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4 votes
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Liquidity Traders

Liquidity traders have no discretion with regard to the timing of their trades. Their trades are triggered by exogenous (to the financial market) reasons and are not related to information. Then we ...
Malick's user avatar
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4 votes

How Market makers work

Being recognised market maker allow to have some advantages: on some trading venues they can see the flows of incoming orders with more transparency, on others they pay less fees. Market makers do not ...
lehalle's user avatar
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3 votes

Market making in thinly traded assets

Research where the liquidity is, Who are the holders and who have historically been the buyers. Getting insight who the buyers and at what price level they would sell (or buy more) is a good technique....
Sammy's user avatar
  • 131
3 votes

How is the futures price set on days without trades?

There is a cascade of methods to choose a settlement price in futures markets - starting with trades in the relevant market, and going through trades in other expiries (plus spreads), quotes, quotes ...
Chris Taylor's user avatar
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2 votes
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Research topics - neural networks and market liquidity

I agree with all Robert says above, but if you already have the data, and you want to quickly create a neural network model and run the analysis, I would suggest the following: The Heaton Site has a ...
Greg Thatcher's user avatar
2 votes
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weird stationary pattern in LDO.MI's stock price

Seems like the least interesting pattern of all - data errors at the Yahoo's side. Just checked with Bloomberg - nothing similar is present. If not a data error, this could be bid-ask bounce (...
Igor Pozdeev's user avatar
2 votes

How to make a trading universe of liquid futures contracts

You could consider using the list of "liquid futures contracts" used in some previously published paper(s) on this subject, there are many. Alternatively, if you think previous studies missed some ...
nbbo2's user avatar
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2 votes

Stressing liquidity (time to liquidate) of a long only equity fund using participation rate or bid ask

If you are concerned about how fast can you convert your equity holdings into cash, then you would care about the ADV (average daily volume) and cost would be a secondary issue. What you can do is ...
AK88's user avatar
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2 votes
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How does liquidity affect trading costs?

High volume leads to narrower bid-ask spreads and lower trading costs. The cost $S$ of trading a stock should be measured as $$S = X \left( \frac{\bar{P} }{ P_\rm{mid} } - 1\right)$$ where $X$ is ...
Chris Taylor's user avatar
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2 votes

Using option pricing methods to model real asset liquidity

I thought a little bit more about your problem and can suggest an analogy. I work in fixed income which deals with IBOR reference rates. One of the outstanding questions is often about the IBOR basis -...
Attack68's user avatar
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2 votes

How do locked markets get resolved in a low-volume market?

Locked or crossed markets are generally not allowed except in extenuating circumstances where synchrony may be difficult, e.g. right after open or in the final minutes leading into the close. What ...
kurtosis's user avatar
  • 2,880
2 votes

What are the quantitative requirements to distinguish between asset classes?

A quant technique that could be used to (partially) address this problem is the Mean Variance Spanning Test of Huberman and Kandel (1987). Abstract This is a statistical test of whether adding K new ...
nbbo2's user avatar
  • 10.9k
2 votes

How Market makers work

An official market maker at an exchange is supposed to continuously provide double sided quotes for the security they register for (they aren't generally market makers for all securities). These ...
Kulendra 'KJ' Janaka's user avatar
2 votes
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Liquidity assessment for OTC derivatives

Assuming you're using "bank" in generic reference to any buy-side account (not a market marker), I'd say there are 3 primary ways to asses liquidity. I think it's important to note that in ...
Thomas Boyd's user avatar
1 vote

Why are Index/ETF put option volumes generally higher than the call option volumes?

It can mostly be attributed to portfolio insurance. Many investors (even mutual funds) are allowed to buy puts to hedge their downside risk in cash positions. I think the fact that mutual funds would ...
Dhruv Mahajan's user avatar
1 vote

Why are Index/ETF put option volumes generally higher than the call option volumes?

Investors buy (and hold) more puts and pay up more for them for a few reasons. First, people fear downside more than they like upside as shown by Kahneman and Tversky (1979, 1992). Second, people may ...
kurtosis's user avatar
  • 2,880
1 vote

Why is the liquidity of ATM options often relatively low even though the underlying security is being traded in large quantity?

There are a number of reasons why Open Interest is low compared to trading in the underlying. However, that doesn't always mean that liquidity is low. I'll repeat the two reasons mentioned in the ...
Bob Baerker's user avatar
1 vote
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Why is the liquidity of ATM options often relatively low even though the underlying security is being traded in large quantity?

Note that the volume and open interest is spread across different expirations and strikes but two reasons why the option volumes are very low compared to equity volume are: An option is for 100 ...
Quantoisseur's user avatar
1 vote

FX convertability modelling: have FX markets ever closed down?

A "convertibility event" is not "FX markets closing down" but a cross-border risk event when a government decrees that its currency cannot be legally converted to another currency. ...
Dimitri Vulis's user avatar
1 vote

liquidity of a portfolio of options

You are right to be concerned about this. The liquidity of many options is not as good as many people imagine. I have personally been in situations where a fund needed to liquidate a large option ...
nbbo2's user avatar
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1 vote

Estimating risk aversion from option bid-ask spreads

Bid Ask spreads should reflect the willingness of parties to exchange at a certain price, where market makers are the sellers it represents the risks they are prepared to take in order to make the the ...
Con Fluentsy's user avatar
1 vote
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Measuring liquiduity of a portoflio of bonds

It does not take into consideration the fact that liquidity is not symmetric, also in Fixed Income markets. Indeed, there is much more liquidity pressure on the downside than on the upside. I suggest ...
Vitomir's user avatar
  • 801
1 vote

Cost of liquidation

Cost of liquidation should include the explicit costs: fees (brokers, exchanges, give-up, post trading, etc) the implicit costs that you cannot know for sure a priori. They are themselves made of ...
lehalle's user avatar
  • 11.5k
1 vote

Basis swap pricing dynamics

You are confusing the underlying index 3M Libor and a 6M loan that pays a compounded 3M interest. A 3M Libor is by definition the (average) rate on an interbank 3M loan. A 6M loan, regardless of its ...
Antoine Conze's user avatar

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