Introduction to FE570: Financial markets and
trading
Instructor: Alec Schmidt, alec.schmidt@stevens.edu
Class: Wednesdays, starting at 6:15pm.
Description. The course offers an overview of modern financial markets for
various securities, different types of traders, orders, and market structures,
market microstructure models used for describing price formation in dealer
markets (inventory models and information-based models), models of the
limit-order markets, and optimal order execution. The course introduces
several typical trading strategies implementing technical analysis, and
arbitrage trading strategies, such as pair trading. The course emphasizes
implementation and methods of back-testing.
Students will learn also the basics of econometrics and R statistical computing
language.
Required textbook:
[1] A.B. Schmidt, Financial markets and trading: Introduction to market
microstructure models and trading strategies (Wiley, 2011).
Recommended textbooks:
[2] R.S. Tsay, Analysis of Financial Time Series (Wiley, 2005).
[3] P. Teetor, R Cookbook (O’Reilly, 2011).
Grading:
Grading consists of five home assignments and a project. In particular, four
essays will demonstrate students’ understanding of modern financial markets,
and one set of exercises will show students’ handling of time series. Plagiarism
and “copy and paste” approach to essays will not be tolerated.
The project will be analysis of performance of a technical trading strategy using
the bootstrap resampling technique. Students will implement resampling and
back-testing algorithms using programming language of their choice (R is
highly preferable).
Assignment
Grade Percent
Home assignments
Project
Total Grade
50%
50%
100%
Syllabus
Topic(s)
Week 1
Week 2
Week 3
Week 4
Week 5
Week 6
Week 7
Week 8
Week 9
Week 10
Week 11
Week 12
Week 13
Week 14
Introduction to the
FE570 course
Financial markets
and trading
Modern financial
markets
Time series analysis
Empirical
distributions and
prediction of returns
Technical trading
strategies
Volatility; Analysis
of performance of
trading strategies
Back-testing of
trading strategies
Arbitrage trading
strategies
Market
microstructure
models
Limit-order markets
Empirical market
microstructure
Optimal order
execution
Presentation of
projects
Reading(s)
Home
assignment
Materials on R programming [3]
[1], Chapter 1
HW1
[1], Chapter 2
HW2
[1] Appendixes A and B; [2]
[1], Chapter 7
HW3
[1], Chapter 10
HW4 (Starting
project)
[1], Chapter 8 and 12.1
[1], Chapter 12.2-12.3
[1], Chapter 11
Project status
report
[1], Chapters 3-4
[1], Chapter 5
[1], Chapter 6
[1], Chapter [13]
HW5