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IAQF-Thalesians Seminar (New York) — Dr. Sebastian Jaimungal — Trading algorithms with learning in latent alpha models

Sebastian Jaimungal

Sebastian Jaimungal


Agenda

Monday, May 15, 2017:


Venue

NYU Kimmel Center, Room 914, Kimmel Center, 60 Washington Square South, NY 10012, NY


Registration


Abstract

Alpha signals for statistical arbitrage strategies are often driven by latent factors. This paper analyses how to optimally trade with latent factors that cause prices to jump and diffuse. Moreover, we account for the effect of the trader's actions on quoted prices and the prices they receive from trading. Under fairly general assumptions, we demonstrate how the trader can learn the posterior distribution over the latent states, and explicitly solve the latent optimal trading problem in an online fashion. Furthermore, we develop a forward-backward algorithm based on expectation-maximization to calibrate a pure-jump model to historical data, illustrate the efficacy of the optimal strategy through simulations, and compare to strategies which ignore learning in the latent factors.

(Joint work with Philippe Casgrain, U. Toronto)


Speaker

Dr. Sebastian Jaimungal is a Full Professor in the Department of Statistical Sciences at the University of Toronto, where he is the director of the Masters of Financial Insurance program, teaches in the Masters of Mathematical Finance program, and the PhD program. Sebastian is the current Chair (and former Vice Chair; Program Director) for SIAM Financial Mathematics and Engineering (SIAG/FM&E), he is a co-author of the book titled “High-Frequency and Algorithmic Trading” published by Cambridge University Press (2015), and acts on the editorial board for a number of academic and industry journals including: SIAM Journal on Financial Mathematics (SIFIN), The International Journal of Theoretical and Applied Finance (IJTAF), High Frequency, Journal of Risks and Argo. Sebastian is also a founding board member of the Commodities and Energy Markets Association.


IAQF-Thalesians Seminars

The IAQF-Thalesians Seminar Series is a joint effort on the part of the IAQF (formerly IAFE) and the Thalesians. The goal of the series is to provide a forum for the exchange of new ideas and results related to the field of quantitative finance. This goal is accomplished by hosting seminars where leading practitioners and academics present new work, and following the seminars with a reception to facilitate further interaction and discussion. The seminar series is limited to IAQF and Thalesians members only.

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