Advancing Collaboration Between Industry & Academia and Exploring Innovation Challenges

Thought Leadership Focus Group on Market Simulation

Workshop Venue: Holborn Bars, 138-142 Holborn, London EC1N 2NQ

18 March 2010, 5:30pm - 7:30pm

Following the Thought Leadership in Trading technology workshop on the 20th January 2010, this will be the first meeting of the Market Simulation focus group.  Our aim is to produce a manifesto that will be presented at the Trade Tech conference in April.

Theme for this Focus Group

Key Observations:

◦ The financial markets are highly complex and constantly changing.

• They are non-linear and dynamically adaptive
• Players do not behave rationally
• Dark pools and other trading mechanisms are deliberately employed to hide the market impact of certain transactions
• Markets are often unstable, and often lose the ability for self-regulation
• The markets are very difficult to model using standard closed-form techniques

◦ If we could successfully model the markets, to a level of detail that captures behaviours of individual firms and individual traders, we could:

• Assess market impact of different trading strategies
• Assess the market impact and market stability consequences of
  - New products
  - Multiple competing algos
  - New order types
  - New market microstructure (semi-lit books, smaller tick sizes)
• Explore the modes of failure of the global markets
  - Discover early warning indicators of critical market transitions
  - Explore strategies to survive a liquidity crisis
• Investigate whether the better economic stimulus is (i) tax reduction or (ii) public spending

Key Questions:

◦ What science can we use from other sectors? eg. Can we draw insights from other research such as stability of eco-systems?

◦ What answers do we want to get from the simulator?

◦ Can market simulation provide market alerts?

◦ Is it possible to predict the value of a stock?

◦ Is it possible to make meaningful statements about current trends?

◦ How can we include behavioural aspects into a new model/simulation?

Registration

We are grateful to our sponsors who have covered the costs of the room and refreshments.  We will ask two participants (selected at random) to take notes during the meeting, to avoid the need to employ a technical secretary.  As a result, this meeting is free of charge.