Modelling Asset Prices for Algorithmic and High-Frequency Trading

Algorithmic trading (AT) and high-frequency (HF) trading, which are responsible for over 70% of US stocks trading volume, have greatly changed the microstructure dynamics of tick-by-tick stock data. In this article, we employ a hidden Markov model to examine how the intraday dynamics of the stock market have changed and how to use this information to develop trading strategies at high frequencies. In particular, we show how to employ our model to submit limit orders to profit from the bid–ask spread, and we also provide evidence of how HF traders may profit from liquidity incentives (liquidity rebates). We use data from February 2001 and February 2008 to show that while in 2001 the intraday states with the shortest average durations (waiting time between trades) were also the ones with very few trades, in 2008 the vast majority of trades took place in the states with the shortest average durations. Moreover, in 2008, the states with the shortest durations have the smallest price impact as measured by the volatility of price innovations

Isolated Word Recognition by Recursive HMM Parameter Estimation Algorithm

Automatic speech recognition (ASR) technologies enable humans to communicate with computers. Isolated word recognition (IWR) is an important part of many known ASR systems. Minimizing the word error rate in cases of incremental learning is a unique challenge for developing an on-line ASR system. This paper focuses on on-line IWR using a recursive hidden Markov model (HMM) multivariate parameter estimation algorithm. The maximum likelihood method was used to estimate the unknown parameters of the model, and an algorithm for the adapted recursive EM algorithm for HMMs parameter estimation was derived. The resulting recursive EM algorithm is unique among its counterparts because of state transition probabilities calculation. It obtains more accurate parameter estimates compared to other algorithms of this type. In our experiment, the algorithm was implemented and adapted to several datasets for IWR. Thus, the recognition rate and algorithm convergence results are discussed in this work