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Магистерская программа «Финансовая экономика»

Financial Market Microstructure

2019/2020
Учебный год
ENG
Обучение ведется на английском языке
3
Кредиты
Статус:
Курс по выбору
Когда читается:
2-й курс, 1 семестр

Преподаватель

Course Syllabus

Abstract

This course covers some of the materials on the microstructure theory of financial markets developed over the last three decades. Theoretical Market Microstructure is intended to develop economic models of financial markets within a “microscopic” approach when one explicitly takes into account a particular market design and types of agents involved in a trading process. One application of the Market Microstructure models is analysis of the impact of market organizational structure on various important market characteristics, such as price efficiency, transaction costs, liquidity, etc., and to construct quantitative indicators of market quality. The main part of the course is based on original academic research papers on Market Microstructure theory. The emphasis is on the finance models that allow for analytic solutions (analytically tractable.) The goal is to provide students with the tools and basic knowledge required to understand and appreciate original academic papers on market microstructure. The course material is intended to be technically self-consistent, which means that we review all necessary background mathematical tools. The primary goal is to develop the ability of applying quantitative models and making (correct) calculations to analyze specific problems, rather than on proving general theorems in a rigorous way. In other words, the tilt is towards a "practical theory" course. This course is quantitative and relies on technical skills developed throughout the course. The prerequisite for this class are: Graduate standing, and some basic course on Financial Economics, e.g. based on Huang and Litzenberger, Foundations for Financial Economics (HL). Although the course materials are self-contained, the students are recommended to carefully read the HL before taking the course.
Learning Objectives

Learning Objectives

  • The students are expected to acquire the following skills: Identifying the scientific nature of the problems in the professional field
  • Working with information: to find, evaluate and use information from various sources, necessary to solve scientific and professional problems (including those on the basis of a systematic approach)
  • Conducting research, including problem analysis, setting goals and objectives, identifying the object and subject of research, choosing the means and methods of research, as well as assessing its quality
  • Based on the description of economic processes and phenomena, ability to build theoretical and econometric models, analyze and meaningfully interpret the results obtained
Expected Learning Outcomes

Expected Learning Outcomes

  • Identify the scientific nature of the problems in the professional field
  • Find, evaluate and use information from various sources, necessary to solve scientific and professional problems
  • Be able to conduct research, including problem analysis, setting goals and objectives, identifying the object and subject of research, choosing the means and methods of research
Course Contents

Course Contents

  • Introduction
    Institutions and market structure.
  • Information and prices; Rational Expectations Equilibrium (REE)
    II.1 Hellwig (1980) model. II.2 Grossman-Stieglitz (1980) model.
  • Models of strategic trading
    III.1 Auction markets. III.2 Dynamic strategies.
  • Information and markets
    Point: informed equilibrium could be less efficient than the uninformed one, at least for some groups of agents.
  • Liquidity and algorithmic trading
    V.1 Optimal execution V.2 Market quality issues
  • Models of the limit order book (LOB)
    VI.1 Uninformed liquidity providers VI.2 Informed liquidity providers
  • Microstructure models: overview
Assessment Elements

Assessment Elements

  • non-blocking Class participation including the presentation of papers
  • non-blocking midterm exam
  • blocking final exam
Interim Assessment

Interim Assessment

  • Interim assessment (1 semester)
    0.55 * final exam + 0.2 * Class participation including the presentation of papers + 0.25 * midterm exam
Bibliography

Bibliography

Recommended Core Bibliography

  • Harris, L. (2002). Trading and Exchanges : Market Microstructure for Practitioners. Oxford: Oxford University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=2096842
  • The microstructure of financial markets, Jong de F., Rindi B., 2010

Recommended Additional Bibliography

  • Richard K. Lyons. (2006). The Microstructure Approach to Exchange Rates. The MIT Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.mtp.titles.026262205x