Investment in High Frequency Trading Technology: A Real Options Approach

This paper derives an optimal timing strategy for a regular slow trader considering investing in a high-frequency trading (HFT) technology. The market is fragmented, and slow traders compete with fast traders for trade execution. Given this optimal timing rule, I then char- acterise the equilibrium level of fast trading in the market as well as the welfare-maximising socially optimal level. I show that there is always a unique cost of investment such that the equilibrium level of fast trading and the socially optimal level coincide. Finally I discuss potential policy responses to addressing equilibrium and social optimality misalignment in HFT

Valuing voluntary disclosure using a real options approach

This paper outlines a real options approach to valuing those announcements which are made by firms outside of their legal requirements. From the firm's perspective, information is disclosed only if the manager of the firm is sufficiently certain that the market response to the announcement will have a positive impact on the value of the firm. When debt financing is possible we find that the manager adopts a more transparent disclosure policy, thus violating the Modigliani-Miller theorem on irrelevance of capital structure

Symmetric Equilibrium Strategies in Game Theoretic Real Option Models with Incomplete Information

This paper considers a real options model with incomplete information in a duopoly setting. I show that even in the presence of a first-mover advantage, there are circumstances in which the preemption region is eroded entirely and the only equilibrium strategy is of simultaneous-type: both players should exercise together or not at all. This outcome arises if the price paid by a player from exercising the option simultaneously with his competitor (over exercising alone as a Stackelberg leader) is low. Such an outcome has not been previously recognised in the literature. The underlying information structure has been applied in a one-firm setting to a range of different contexts of late, all of which have competitive pressures in practice. As such, the existence of this equilibrium under certain conditions ought to be recognised

An Examination of the Optimal Timing Strategy for a Slow Trader Investing in a High Frequency Trading Technology

This paper examines, using a real options approach, the optimal time for financial market investors to adopt a high frequency trading (HFT) technology. When the level of fast trading in the market is high, investors should wait longer before adopting when the cost of the technology is high, and vice versa. However, when the market is highly fragmented, they should invest early (wait longer) when the cost of doing so is high(low). Furthermore, the equilibrium level of investment prescribed by the model exceeds the socially optimal level, and investors should wait longer (invest earlier) than the optimal time when the technology is relatively cheap (expensive) in order to be more socially optimal

A Model of Investment under Uncertainty with Time to Build, Market Incompleteness and Risk Aversion

In this paper I develop a theoretical framework of irreversible investment under uncertainty in which there is time to build (TTB). The novel aspects of this framework, compared with TTB models in the extant literature, are that the market is incomplete in that not all the uncertainty associated with investing can be diversified away by trading an appropriate spanning asset, and the decision-maker, who acts in the interest of an organisation, is risk averse. I show that models of investment under uncertainty with a TTB, and models of investment under uncertainty with market incompleteness and risk aversion, ought not to be mutually exclusive as they have been in research to date because the recognised results of market incompleteness and risk aversion on the optimal investment strategy are challenged when we incorporate a TTB feature. Conversely, there are also implications on the effect of a TTB when we incorporate market incompleteness and risk aversion. The framework I develop in this paper provides a robust and parsimonious means of facilitating this

Valuing Voluntary Disclosure with Competitive Interactions using a Real Options Approach

This paper examines the impact of competition, in a duopoly framework, on the voluntary disclosure policy of firms. Each firm is assumed to have invested in a specific product and the manager of each firm must then decide when to optimally disclose its involvement in the product to the market, while taking into consideration the disclosure strategy of the other firm. A preemption, attrition, or synergy equilibrium is found, depending on the trade-off between first and second mover advantages and, also on the advantage from simultaneous disclosur

Insights Into The Negotiation Strategies and Tactics Employed By U.S. Air Force Contract Negotiators

Negotiation of contract terms, conditions, and prices is an oft-used but little studied activity in the Department of Defense (DoD). Several recent research projects undertaken by graduate students and faculty at the Air Force Institute of Technology have focused on learning more about the negotiation process as practiced by Government (primarily Air Force) contract negotiators. This paper summarizes some of the more interesting findings of two of these research efforts in the area of strategies and tactics employed during negotiations

Investigation of advanced counterrotation blade configuration concepts for high speed turboprop systems, task 1: Ducted propfan analysis

The time-dependent three-dimensional Euler equations of gas dynamics were solved numerically to study the steady compressible transonic flow about ducted propfan propulsion systems. Aerodynamic calculations were based on a four-stage Runge-Kutta time-marching finite volume solution technique with added numerical dissipation. An implicit residual smoothing operator was used to aid convergence. Two calculation grids were employed in this study. The first grid utilized an H-type mesh network with a branch cut opening to represent the axisymmetric cowl. The second grid utilized a multiple-block mesh system with a C-type grid about the cowl. The individual blocks were numerically coupled in the Euler solver. Grid systems were generated by a combined algebraic/elliptic algortihm developed specifically for ducted propfans. Numerical calculations were initially performed for unducted propfans to verify the accuracy of the three-dimensional Euler formulation. The Euler analyses were then applied for the calculation of ducted propfan flows, and predicted results were compared with experimental data for two cases. The three-dimensional Euler analyses displayed exceptional accuracy, although certain parameters were observed to be very sensitive to geometric deflections. Both solution schemes were found to be very robust and demonstrated nearly equal efficiency and accuracy, although it was observed that the multi-block C-grid formulation provided somewhat better resolution of the cowl leading edge region

Performance Evaluation of Weapon Systems Procurement Offices: A Relative Efficiency Measurement Approach

Performance evaluation of service organizations requires better efficiency measurement techniques than simple ratios or regression. This paper reports on a new and powerful linear programming based multi-input, multioutput model, Data Envelopment Analysis (DEA) and its application in an Air Force Systems Conma.nd product division\u27s twenty-one procurement offices

Radiative corrections in processes at the SSC

We discuss radiative corrections for interactions in the SSC environment. Based on the theory of Yennie, Frautschi and Suura, we develop appropriate Monte Carlo event generators to compute the background electromagnetic radiation. Our results indicate that multiple-photon effects must be taken into account in the study of SSC physics such as Higgs decay.Comment: UTHEP-92-0901, 15 pages (incl. 3 figures), LaTeX (Talk presented at the XXXII Cracow School of Theoretical Physics, Zakopane, June 1992