FINC-UB.0049 Principles of Securities Trading, Spring 2015

Last updated Sunday, May 17, 2015 1:05 PM

Class meets Tu, Thu, 2:00-3:15 PM in KMEC 5-90

Active Syllabus (Topics and Schedule)

Professor Joel Hasbrouck
jhasbrou@stern.nyu.edu
www.stern.nyu.edu/~jhasbrou

Office hours: Tuesday, Thursday 3:30-4:30pm, MEC 9-88.

Announcements

• H1 solution key
• The final exam is scheduled for Tuesday, May 19 at 2pm. Our regular room. Sample final exam questions and answers.
• The H3 case is looping on the server. You can play until 11:59pm on Wednesday 5/6.
• In class on Thursday, April 30, we'll be running the H3 case. This is an RIT case and you'll need a windows laptop. The situation is described in the H3 case write-up and the class notes on Dynamic Hedging. The spreadsheet Black-Scholes.xlsx contains a detailed Black Scholes calculation, including the hedge ratio (delta) that you'll need for the case. In preparation for the case, you'll need a printed table that gives the the number of shares you should be holding as a function of the SAC stock price. See slide 29 in the class notes. When the market is running, you'll need to buy the stock (establish the hedge) and trade to adjust the hedge as the stock price changes.
• The H1 case is due 2:00 PM, Thursday, April 23. You should have received an email with the details. There are two parts. (1) The written part of the case will be conducted through NYU Classes as an online assessment. You'll shortly be receiving instructions for how to access it. This part of the assignment consists of computing a few numbers (in Q1-4). You should also upload the spreadsheet that contains your detailed calculations (in Q5). Complete the assignment before 2:00pm Thursday, April 23. (2) The market itself is looping on the RIT server jhasbrou.stern.nyu.edu. Play twice before before 2:00pm Thursday, April 23. Scoring will be based simply on the hedge that you implement - NOT on ultimate trading profits. The H1 case write-up was distributed by email and in class. You can also download a copy here. The data are in the H1.xlsx spreadsheet.
• On Thursday, April 16, we'll be doing an in-class RIT exercise. Please bring a windows laptop. Also, we'll be doing some spreadsheet calculations based on the H1.xlsx spreadsheet.
• The RIT F1 exercise is running through 6pm on Thursday, April 2. Please play at least once before this deadline. See the handout RIT trading exercise F1.
• There will be an in-class midterm exam on Thursday, March 12.
• The class on Tuesday, March 10 will be a review session. The STPP (Securities Trading Principles and Procedures) Problems and Exercises handout is posted here (updated Tuesday, March 10, 9pm).
• The TAQ exercise Part II is due on Tuesday, March 24.
• The TAQ exercise Part I will be discussed in class on Thursday, Feb 12. It is due on Thursday, Feb 26.
• The Registrar has scheduled the final exam in this course for Tuesday, May 19, 2:00-3:50.

Video links are automatically posted to the class page in NYU CLASSES.

Description

Most finance courses focus on how securities are defined, valued and used. This course is about how securities are traded: the design, operation and regulation of trading processes, mechanisms and protocols. Today's markets for stocks, bonds, and derivatives span a wide range in sophistication and complexity. For some securities, the market has evolved to an integrated network that offers very high levels of access and transparency. At the other exteme we have markets that operate as small dealer networks sustained by reputation and relationship. Some mechanisms are new (the open electronic limit order book); some are as old as antiquity (the single-price call auction). We have a general sense that all markets are heading toward some sort of electronic future, but the speed of progress and convergence varies widely. Our markets are infused with tensions between efficiency and fairness, competition and regulation, consolidation and fragmentation, speed and stability, and so on.

The course is based on a realistic picture of the trading process, so we go into a fair amount of insitutional detail, as well as some law and market regulation. The intellectual framework for the material comes from mainstream economics, financial economics, and the newer subfield of financial economics known as market microstructure.

• The course is aimed at people who are working for (or plan careers in) securities exchanges, securities trading, or trading support IT.
• The course covers general features trading strategies and algorithms. The goal here is determining how to implement our hedging and portfolio strategies in some optimal (cheap and effective) manner. It is not about developing trading strategies that are profitable in and of themselves. It will not teach you how to become a day trader or high-frequency trader. In fact, I hope that you come away with a better sense of the substantial barriers to long-term success in these activities.

Workload and deliverables

The course requirements will involve a mix of midterm and final exams, one or more data analysis projects, and participation in trading exercises.

Some of the trading exercises are involve face-to-face non-automated trading. (I usually set up a floor market in Kryptonite futures contracts.) Most present day trading takes place on computers, though, and so too are most of the exercises.

• Software: For some of the exercises, we'll be using the Veconlab package. Veconlab is internet-based and can run in almost any web browser (certainly Mac or Windows, probably Android). Most of the exercises, through, will rely on the Rotman Interactive Trader (RIT) package. RIT requires a Windows system. If you don't have a Windows system, you can borrow one at the IT help center. If you're curious, there's a demo page where you can download the software and play with it (http://rit.rotman.utoronto.ca/); also see the notes on local (Stern) usage of RIT.
• In-class exercises / homework exercises: You'll work some of the RIT exercises outside of class at times of your own choosing. (For these, I'll put the RIT server in a loop so that the market runs repeatedly.) Other exercises, though, require the entire class to be playing at the same time. These exercises will be run in class. I'll give you advance notice of these, so that you'll have time to borrow a machine (if needed) and load any needed software. When we're running in-class markets, it is particularly important that you arrive to class prepared and on time.

School and departmental grading standards

• At NYU Stern, we strive to create courses that challenge students intellectually and that meet the Stern standards of academic excellence. To ensure fairness and clarity of grading, the Stern faculty have agreed that for elective courses the individual instructor or department is responsible for determining reasonable grading guidelines.
• The Finance Department has elected to use the following grading guidelines for this course and all other elective courses. Instructors should award grades of “A” or “A-” to approximately 35% of students in elective courses with enrollments of more than 25 students. In elective classes of less than 25 students, the instructor is at liberty to give whatever grades they think the students deserve, while maintaining rigorous academic standards.

Other policies

NYU/Stern policies on Academic Integrity, General Conduct & Behavior, Students with Disabilities, and related matters are posted at http://www.stern.nyu.edu/portal-partners/current-students/undergraduate/resources-policies/academic-policies/. Unless otherwise stated, these should also be considered policies for this course.

Readings

• The principal text for the course is my set of teaching notes Securities Trading: Procedures and Principles (STPP). Note: these notes are in a constant state of revision, and chapter references given below may change. Problems and exercises are in STPP Problems and Exercises (first half). Sample final exam questions and answers (second half).
• Other articles are indicated in the topics and schedules section, below. I'll post class handouts as we go along.
• Other useful material can be found off my SDFM links and sources page.