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Papers about risk managment in algorithmic trading systems?
student
posted

I am currently doing my research for my master thesis, which will clearly focus on the question of risk managment in algorithmic trading systems.

I have done research about this topic and found some valuable nuggets here:

  • Extreme Value Theory and Fat Tails in Equity Markets. Blake LeBaron
    and Ritirupa Samanta. May, 2004.
  • Algorithmic Trading and DMA

However, as I see, algorithmic trading is an extremely hidden topic. Therefore, I really would appreciate from you as financial professionals, a hint about papers about risk managment in hft/algorithmic trading/blackbox trading!

1 response
Tim Meggs

Hi - great question!

To some extent the answer depends on what you understand, or mean, by 'algorithmic trading systems'. Market practitioners tend to think of algorithmic trading more in terms of enhanced methods of automated execution, such as TWAP or VWAP, or more generally the use of automated electronic methods to enhance execution performance.

'Systematic' trading strategies is actually more often than not what people actually mean when they say 'algorithmic trading'. Very broadly, systematic trading strategies take an investment idea and seek to encode that idea within a set of rules usually within a computer program. The program will then to a large extent monitor and run the investment process.

The difference between the two areas - algorithmic and systematic - has been blurred in recent years with the rise of HFT which uses much of the technology and approach commonly found in the algorithmic sphere as a method of investment.

To give a fuller and complete answer, it would be good to understand which one you mean?

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