S. Jaimungal
Department of Statistics and Mathematical Finance Program, University of Toronto

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STA 4505H – High Frequency & Algorithmic trading


This course will be begin Wed Feb 26, 2014 , deadline to drop the course is Fri, March 7, 2013

If you are interested in taking this course, please read through chapters 1-4 of Shreve's book on Stochastic Calculus for finance volume 2. Spend more time on chapters 3 and 4, with a light reading of chapters 1 and 2.

Location :

Lectures: Wed 2pm - 5pm in SS 2120 (Sidney Smith Hall, 100 St. George Street)

Class Notes / Lectures :

Class notes and videos will be updated as the course progresses.

# Description Video Notes

Introduction & Overview

additional stoch. calc lectures 7, 8,9 from sta 2502




2 Overview of implementaion shortfall model, market orders only, limit orders only, intro stochastic optimal control   STA4505-2.pdf
3 The dynamic programming equation, solving the Almngren-Chriss implementation shortfall optimal liquidation problem

STA 4505-3a stream

STA 4505-3b stream

4 Optimal liquidation with limit orders, The dynamic programming equation for jump-difussions

5 more on optimal liquidation with limit orders, limit and market orders

from Chap 11 of book notes
6 Project Descriptions

STA 4505-6a stream

STA 4505-6b stream

STA 4505-6c stream




With the availability of high frequency financial data, new areas of research in stochastic modeling and stochastic control have opened up. This 6 week course will introduce students to the basic concepts, questions and methods that arise in this domain. We will begin with the classical market microstructure models, understand different theories of price formation and price discovery, identify different types of market participants, and then move on to reduced form models. Next, we will investigate some of the typical algorithmic trading strategies employed in industry for different asset classes. Finally, we will develop stochastic optimal control problems for solving optimal liquidation and high frequency market making problems and demonstrate how to solve those problems using the principles of dynamic programming leading to Hamilton-Jacobi-Bellman equations. Students will also have a chance to work with historical limit order book data, develop Monte Carlo simulations and gain a working knowledge of the models and methods. Tentative topics include:

- Market Microstructure

- Overview of Stochastic Calculus

- Stochastic Control & Dynamic Programming

- Optimal Liquidation

- Market Making

- Pairs Trading

Grading Scheme:

Here is a tentative grading scheme, we will discuss this during the first class.



Participation 25%







Report and Presentation will be based on students implementing some of the models we discuss in class as well as reporting on a collection of relevant papers.