拉斯维加斯9888

Finance Seminar（2014-03）

Topic:Optimal Strategies of High Frequency Traders

Speaker:Jiangmin Xu, Princeton University

Time:Wednesday, 19 February, 10:00-11:30

Location:Room 217, Guanghua Building 2

Abstract：This paper develops a continuous-time model of the optimal strategies of high-frequency traders (HFTs) to rationalize their pinging activities. Pinging, or the most aggressive fleeting orders, is defined as limit orders submitted inside the bid-ask spread that are cancelled shortly thereafter. The current worry is that HFTs utilize their speed advantage to ping inside the spread to manipulate the market. In contrast, the HFT in my model uses pinging to control inventory or to chase short-term price momentum without any learning or manipulative motives. I use historical message data to reconstruct limit order books, and characterize the HFT’s optimal strategies under the viscosity solution to my model. Implications on pinging activities from the model are then gauged against data. The result confirms that pinging is not necessarily manipulative and is rationalizable as part of the dynamic trading strategies of HFTs.