Executive Summary: Security Trading: Algorithmic Dealer Simulation

953 Words4 Pages
Hamad Bin Aziz 50209993 Security Trading – Algorithmic Dealer Simulation Executive Summary Section 1 Brief summary of this exercise explaining what we do in this project. The algorithmic dealer simulation puts us in the shoes of a dealer and gives us the experience of trading in a dealer’s market. We were asked to create various strategies that covered a range of different trading circumstances. These strategies would then encourage and improve order flow. Maximising the average utility through the created strategies on all the problems was the main goal. Explain your choice of problems. Clearly identify how the problems are grouped into sets. The set of problems chosen to test the strategies were based on putting in different values for the…show more content…
For example, overnight volatility would remain constant in one group, with others changing in the problems of that group. Explain the mechanics of 1-2 preloaded strategies in detail. Strategy 2: Spread = .08 Depth = 10 All Full No Inv MgmtThe pricing strategy would be that the bid price is set at 0.04 less than the other dealers midpoint while the ask price is set at 0.04 more than the other dealers midpoint. The bid depth and ask depth both are set at 20. Strategy 3: If Spr<=.06, Better .01, Spr=.04 Match Depth All Full No Inv MgmtThe pricing strategy would be If the other dealer is to set his spread less than or equal to 6 cents, then it will take the other dealers bid price and 0.01 to it. If the other dealer is to submit a narrow spread, you will beat him by a penny. If that does not happen, it will take the other dealers midpoint and minus 0.02. The bid depth will be the same as the other dealers bid depth. a) First, describe which strategies dominated various problem blocks (results). There were a few preloaded strategies which dominated different problem blocks when I tested them on the created problem…show more content…
Mechanically how is your strategy different than your best strategies in 4a Strategy 6 : Inventory Management in Price Cutoffs = 10 could be improved with a small tweak on the preloaded strategy. The cutoff could be reduced from 10 to say 5-6. Why does the change in 5a work better? With the tweaked strategy 6, the reduced cut-off will ensure that the inventory be cut down quickly when the overnight volatility and order processing costs are relatively high. The bid-ask spread is also a cost to the dealer. Reducing the bid-ask spread would make prices more competitive and also lower costs. Section 2 Strategy # Description 15 Better .02 Match Depth All Full No Inv MgmtBid price is 0.02 more than the other dealers bid price. Ask price is 0.02 less than the other dealers ask price. 16 Inventory Management in Depth Cutoffs = 30 When the cum. inventory goes over 30, the bid depth will be 1. When the cum. Inventory goes over 30, the ask depth will be 30. 17 Inventory Management in Price Cutoffs = 8 If cum. Inventory is more than 8, my bid price is 0.02 less than the other dealers bid price and vice
Open Document