The Simplicity of Optimal Trading in Order Book Markets

A trader’s execution strategy has a large effect on his profits. Identifying an optimal strategy, however, is often frustrated by the complexity of market microstructures. We analyse an order book based on continuous double auction market under two different models of trader’s behaviour. In the first case actions only depend on a linear combination of the best bid and ask. In the second model, traders adopt the Markov perfect equilibrium strategies of the trading game. Both models are analytically intractable, and so optimal strategies are identified by the use of numerical techniques. Using the Markov model we show that, beyond the best quotes, additional information has little effect on either the behaviour of traders or the dynamics of the market. The remarkable similarity of the results obtained by the linear model indicates that the optimal strategy may be reasonably approximated by a linear function. We conclude that while the order book market and strategy space of traders are potentially very large and complex, optimal strategies may be relatively simple and based on a minimal information set

Health care use and costs of adverse drug events emerging from outpatient treatment in Germany: A modelling approach

<p>Abstract</p> <p>Background</p> <p>This study's aim was to develop a first quantification of the frequency and costs of adverse drug events (ADEs) originating in ambulatory medical practice in Germany.</p> <p>Methods</p> <p>The frequencies and costs of ADEs were quantified for a base case, building on an existing cost-of-illness model for ADEs. The model originates from the U.S. health care system, its structure of treatment probabilities linked to ADEs was transferred to Germany. Sensitivity analyses based on values determined from a literature review were used to test the postulated results.</p> <p>Results</p> <p>For Germany, the base case postulated that about 2 million adults ingesting medications have will have an ADE in 2007. Health care costs related to ADEs in this base case totalled 816 million Euros, mean costs per case were 381 Euros. About 58% of costs resulted from hospitalisations, 11% from emergency department visits and 21% from long-term care. Base case estimates of frequency and costs of ADEs were lower than all estimates of the sensitivity analyses.</p> <p>Discussion</p> <p>The postulated frequency and costs of ADEs illustrate the possible size of the health problems and economic burden related to ADEs in Germany. The validity of the U.S. treatment structure used remains to be determined for Germany. The sensitivity analysis used assumptions from different studies and thus further quantified the information gap in Germany regarding ADEs.</p> <p>Conclusions</p> <p>This study found costs of ADEs in the ambulatory setting in Germany to be significant. Due to data scarcity, results are only a rough indication.</p

High frequency trading strategies, market fragility and price spikes: an agent based model perspective

Given recent requirements for ensuring the robustness of algorithmic trading strategies laid out in the Markets in Financial Instruments Directive II, this paper proposes a novel agent-based simulation for exploring algorithmic trading strategies. Five different types of agents are present in the market. The statistical properties of the simulated market are compared with equity market depth data from the Chi-X exchange and found to be significantly similar. The model is able to reproduce a number of stylised market properties including: clustered volatility, autocorrelation of returns, long memory in order flow, concave price impact and the presence of extreme price events. The results are found to be insensitive to reasonable parameter variations