On the winning virtuous strategies for ultra high frequency electronic trading in foreign currencies exchange markets

Ledenyov, Dimitri O. and Ledenyov, Viktor O. (2014): On the winning virtuous strategies for ultra high frequency electronic trading in foreign currencies exchange markets.

Abstract

In the Schumpeterian creative disruption age, the authors firmly believe that an increasing application of electronic technologies in the finances opens a big number of new unlimited opportunities toward a new era of the ultra high frequency electronic trading in the foreign currencies exchange markets in the conditions of the discrete information absorption processes in the diffusion - type financial systems with the induced nonlinearities. Going from the academic literature, we discuss the probability theory and the statistics theory applications to accurately characterize the trends in the foreign currencies exchange rates dynamics in the short and long time periods. We consider the financial analysis methods, including the macroeconomic analysis, market microstructure analysis and order flow analysis, to forecast the volatility in the foreign currencies exchange rates dynamics in the short and long time frames. We discuss the application of the Stratanovich-Kalman-Bucy filtering algorithm in the Stratanovich – Kalman – Bucy filter and the particle filter to accurately estimate the financial time series and predict the trends in the foreign currencies exchange rates dynamics in the time domain. We research the influence by the discrete information absorption on the ultra high frequency electronic trading strategies creation and execution during the electronic trading in the foreign currencies exchange markets. We formulate 1) the Ledenyov strategy search algorithm and 2) the Ledenyov law on the limiting frequency (the cut-off frequency) for the ultra high frequency electronic trading in the foreign currencies exchange markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: absorption of information, diffusion of information, transmission of information, information theory, ultra high frequency electronic trading, processing frequency, algorithmic trading, informed trading, noise trading, currencies exchange rate, vehicle currency, interest rate, retail aggregator, liquidity aggregator, interdealer trade orders flow direction, stop-loss order, bid - ask spreads, price discovery process, capital inflow, capital outflow, carry trade strategy, financial liquidity, foreign currencies exchange market micro structure, foreign currencies exchange rate dynamics, Wiener filtering theory, Stratanovich-Kalman-Bucy filtering algorithm, Stratanovich – Kalman – Bucy filter, particle filter, nonlinearities, Ledenyov law on limiting frequency for ultra high frequency electronic trading in foreign currencies exchange markets, econophysics, econometrics, global foreign exchange market, global capital market
• Subjects: C - Mathematical and Quantitative Methods > C0 - General; C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; C - Mathematical and Quantitative Methods > C0 - General > C02 - Mathematical Methods; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C15 - Statistical Simulation Methods: General; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C41 - Duration Analysis ; Optimal Timing Strategies; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C46 - Specific Distributions ; Specific Statistics; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Prediction Methods ; Simulation Methods; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C63 - Computational Techniques ; Simulation Modeling; F - International Economics > F1 - Trade > F17 - Trade Forecasting and Simulation; F - International Economics > F3 - International Finance > F30 - General; F - International Economics > F3 - International Finance > F31 - Foreign Exchange; F - International Economics > F3 - International Finance > F32 - Current Account Adjustment ; Short-Term Capital Movements; G - Financial Economics > G1 - General Financial Markets; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

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