11
votes
Accepted
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 ...
- 2,233
10
votes
Accepted
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 ...
- 11.2k
6
votes
Accepted
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 ...
- 4,968
6
votes
Accepted
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 ...
- 11.2k
5
votes
Accepted
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 ...
- 4,315
5
votes
Research topics - neural networks and market liquidity
You can try using different approaches. Starting from something not that "heavy" like the NN.
0) Pre study
- you need to prepare your data (how you will treat a negative spread (i.e. ASK - BID <...
4
votes
Accepted
How do I calculate approximate equity liquidity?
You can use refined methodologies but if you just need a rough estimation of liquidity, you can simply use an average of daily volume over N days. In practice, for equities, people tend to use N = 20 ...
- 910
4
votes
Accepted
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 ...
- 11.2k
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 ...
- 11.2k
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....
- 131
3
votes
Accepted
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 ...
- 2,542
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 ...
- 5,778
2
votes
Impact on bid/offer due to volume/size of trades placed
If you are after treasuries, you can check
http://www.newyorkfed.org/research/staff_reports/sr381.pdf
which discusses trade impact on BrokerTec. If you are after equities, the literature is ...
- 1,541
2
votes
How do I calculate approximate equity liquidity?
I would consider Amihud (2002) as a good first approximation with that level of data.
- 1,047
2
votes
Estimating an appropriate haircut for illiquid stocks
You're going to have to do a lot of guesswork, obviously, so it's best to keep things mathematically simple. First off, choose a "certainty level" as some quantile $q$, perhaps around 0.9, and the ...
- 14.6k
2
votes
Accepted
Estimating an appropriate haircut for illiquid stocks
Generally if they are missing a completely at random data in few places, you do not have to be worried.
I advice you to use one of the technics of imputation:
- Previous value - cannot be used in ...
2
votes
Accepted
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 ...
- 266
2
votes
Accepted
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 (...
- 932
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 -...
- 8,412
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 ...
- 10.3k
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 ...
- 1,830
2
votes
Accepted
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 ...
- 5,778
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 ...
- 2,840
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 ...
- 10.3k
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 ...
2
votes
Accepted
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 ...
- 503
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 ...
- 304
1
vote
Accepted
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 ...
- 791
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
...
- 11.2k
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 ...
- 5,612
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