Market Microstructure in Practice: Why and how to trade optimally in a fragmented market - Part I

Charles Lehalle
Capital Fund Management

These lectures will start with an introduction to market microstructure and focus on the price formation process and the role of intermediaries. They will thus cover auction mechanisms, influence of regulations (Reg NMS and MiFID), fragmentation and market impact. We will then explore models for orderbook dynamics.
After a short review of some statistical facts, we will cover different aspects of optimal trading:
• optimal order routing across dark pools
• optimal trade scheduling
• optimal market making.
Academic results will be presented at the light of my practical experience, to deliver applicative perspectives.

• [Bacry et al., 2014]Bacry, E., A. Iuga, M. Lasnier, and C.-A. Lehalle (2014, December). Market impacts and the life cycle of investors orders. Social Science Research Network Working Paper Series.
• [Bouchard et al., 2011]Bouchard, B., N.-M. Dang, and C.-A. Lehalle (2011). Optimal control of trading algorithms: a general impulse control approach. SIAM J. Financial Mathematics 2(1), 404–438.
• [Guéant and Lehalle, 2013]Guéant, O. and C.-A. Lehalle (2013, October). General intensity shapes in optimal liquidation. Mathematical Finance, n/a.
• [Guéant et al., 2012]Guéant, O., C.-A. Lehalle, and J. Fernandez-Tapia (2012). Optimal Portfolio Liquidation with Limit Orders. SIAM Journal on Financial Mathematics 13(1), 740–764.
• [Guéant et al., 2013]Guéant, O., C.-A. Lehalle, and J. Fernandez-Tapia (2013, September). Dealing with the inventory risk: a solution to the market making problem. Mathematics and Financial Economics 4(7), 477–507.
• [Huang et al., 2013]Huang, W., C.-A. Lehalle, and M. Rosenbaum (2013, December). Simulating and analyzing order book data: The queue-reactive model.
• [Labadie and Lehalle, 2014]Labadie, M. and C.-A. Lehalle (2014, March). Optimal starting times, stopping times and risk measures for algorithmic trading. The Journal of Investment Strategies 3(2).
• [Lachapelle et al., 2013]Lachapelle, A., J.-M. Lasry, C.-A. Lehalle, and P.-L. Lions (2013, May). Efficiency of the price formation process in presence of high frequency participants: a mean field game analysis.
• [Laruelle et al., 2013]Laruelle, S., C.-A. Lehalle, and G. Pagès (2013, June). Optimal posting price of limit orders: learning by trading. Mathematics and Financial Economics 7(3), 359–403.
• [Lehalle, 2013]Lehalle, C.-A. (2013). Market microstructure knowledge needed to control an intra-day trading process.
• [Lehalle et al., 2010]Lehalle, C.-A., O. Guéant, and J. Razafinimanana (2010). High frequency simulations of an order book: a Two-Scales approach. In F. Abergel, B. K. Chakrabarti, A. Chakraborti, and M. Mitra (Eds.), Econophysics of Order-Driven Markets, New Economic Windows. Springer.
• [Lehalle et al., 2013]Lehalle, C.-A., S. Laruelle, R. Burgot, S. Pelin, and M. Lasnier (2013). Market Microstructure in Practice. World Scientific publishing.
• [Lehalle et al., 2012]Lehalle, C.-A., M. Lasnier, P. Bessson, H. Harti, W. Huang, N. Joseph, and L. Massoulard (2012, August). What does the saw-tooth pattern on US markets on 19 july 2012 tell us about the price formation process. Technical report, Crédit Agricole Cheuvreux Quant Note.
• [Pagès et al., 2011]Pagès, G., S. Laruelle, and C.-A. Lehalle (2011). Optimal split of orders across liquidity pools: a stochastic algorithm approach. SIAM Journal on Financial Mathematics 2, 1042–1076.

Presentation (PDF File)

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