Stevens Institute of Technology Hosts 4th Annual High Frequency Conference
Approximately 200 industry professionals, academics, faculty and students from around the country descended upon Stevens from July 19 to 22, 2012 for the 4th Annual Modeling High Frequency Data in Finance Conference (HF Conference), which gathered key thought leaders in the areas of mathematical finance, financial engineering, quantitative finance, systemic risk, stochastic processes and applications.
Held annually, the HF Conference exposes attendees to the latest research and applications for data sampled with high frequency. This year’s conference especially emphasized the relationship between high frequency trading and volatility induced in the markets, and the impact of high frequency trading in equity, FX, fixed income, commodity and energy markets.
“We are very pleased with the response and caliber of this event,” said Ionut Florescu, conference chair and Stevens professor. “The HF Conference has become the major annual event in the area of study of problems related to modeling large data, particularly in finance.”
The conference opened with remarks by Florescu, followed by a welcome address by Stevens alumnus Sean Hanlon, chairman of the Financial Systems Center (FSC) advisory board at Stevens.
Next, keynote speaker Scott O’Malia, commissioner of the U.S. Futures Trading Commission (CFTC), took the stage for his presentation, entitled, “The True Sign of Intelligence.” O’Malia discussed the state of technology at the CFTC and the finance industry as a whole, and called for government to institutionalize academic interaction with the CFTC.
“It is time we created a new model for the CFTC to draw on the vast expertise of universities like Stevens,” said O’Malia. “Formalizing this relationship would support the creation of new analytical and automated surveillance tools, risk modeling and cross market analytical capabilities, just to name a few.”
To enable government and academia to work together and leverage the expertise between industries, O’Malia proposed the development of contracting tools for research-specific questions, whereby government institutions would be able to reach out and draw on academic expertise to examine and review research questions.
Chris Ferreri, Stevens alumnus and FSC advisory board member, agreed that it is vital for academia and government coming together to expand their knowledge base.
“This was a very powerful policy speech and provides a great opportunity for Stevens to engage with the CFTC at a deeper level,” said Ferreri.
Keynote speaker Alain Chaboud, senior economist for the International Finance Board and BOG, discussed algorithmic trading in the foreign exchange market, specifically the different regulations regarding high frequency trading in the U.S. and Europe.
“The European opinion is that markets don’t work well without regulation; the U.S. opinion is that U.S. markets do fine without intervention – they are using the same data to come to these opposite conclusions,” Chaboud said.
Chaboud also spoke about the often overlooked lessons that could be learned from currency exchange markets in regards to high frequency trading. He said the “flash crash” of May 6, 2010 and subsequent recovery, which took only minutes, was not caused by high frequency trading.
“While it is widely perceived that high frequency trading has increased volatility, data suggests that that is not the case,” he said. “If anything, on average measures of market quality improve slightly with more high frequency trading. In fact, it is humans who have the largest impact on long-term prices.”
Chaboud added that more regulation of high frequency trading may be a potential solution.
“The danger is that the governments and regulators have the proven ability to screw things up, but good regulations may allow good actors to behave well by constraining bad actors,” he said.
Another keynote speaker, Peter Carr, global head of market modeling at Morgan Stanley and executive director of the Math Finance program at New York University, focused on financial forecasts and time series analysis. He showed that volatilities of an asset can also be forecast using a cross section of option prices. Using the Ross Recovery theorem, he showed how real world distributions can also be obtained from this cross section.
One particularly engaging special panel session focused on the future of high frequency data analysis. It featured guest panelists: Alain Chaboud; Sakda Chaiworawitkul, vice president of global commodities at J.P. Morgan Chase; Dennis Goett of Thomson Reuters; and H. Eugene Stanley from Boston University and NSAS.
Over the course of the four-day conference, other speakers presented in-depth research on a wide variety of topics, including: Mini-flash crashes, the structure of bid-ask spread, estimating the intraday volatility, option and derivative pricing in the presence of high frequency, Fractional Brownian motion and long term dependent models, preferential attachment model and financial systemic risk. Abstracts of the talks which speakers agreed to make public may be found at www.stevens.edu/fsc/events.
The HF Conference was sponsored by the National Science Foundation and the Financial Systems Center at Stevens, a state-of-the-art financial research and teaching facility that supports programs at the undergraduate, master’s and doctoral levels. It was organized by Stevens, Boston University, Purdue University and the University of Texas at El Paso.