Realtime market microstructure analysis: online Transaction Cost Analysis

Motivated by the practical challenge in monitoring the performance of a large number of algorithmic trading orders, this paper provides a methodology that leads to automatic discovery of the causes that lie behind a poor trading performance. It also gives theoretical foundations to a generic framework for real-time trading analysis. Academic literature provides different ways to formalize these algorithms and show how optimal they can be from a mean-variance, a stochastic control, an impulse control or a statistical learning viewpoint. This paper is agnostic about the way the algorithm has been built and provides a theoretical formalism to identify in real-time the market conditions that influenced its efficiency or inefficiency. For a given set of characteristics describing the market context, selected by a practitioner, we first show how a set of additional derived explanatory factors, called anomaly detectors, can be created for each market order. We then will present an online methodology to quantify how this extended set of factors, at any given time, predicts which of the orders are underperforming while calculating the predictive power of this explanatory factor set. Armed with this information, which we call influence analysis, we intend to empower the order monitoring user to take appropriate action on any affected orders by re-calibrating the trading algorithms working the order through new parameters, pausing their execution or taking over more direct trading control. Also we intend that use of this method in the post trade analysis of algorithms can be taken advantage of to automatically adjust their trading action.Comment: 33 pages, 12 figure

Modeling delay in genetic networks: From delay birth-death processes to delay stochastic differential equations

Delay is an important and ubiquitous aspect of many biochemical processes. For example, delay plays a central role in the dynamics of genetic regulatory networks as it stems from the sequential assembly of first mRNA and then protein. Genetic regulatory networks are therefore frequently modeled as stochastic birth-death processes with delay. Here we examine the relationship between delay birth-death processes and their appropriate approximating delay chemical Langevin equations. We prove that the distance between these two descriptions, as measured by expectations of functionals of the processes, converges to zero with increasing system size. Further, we prove that the delay birth-death process converges to the thermodynamic limit as system size tends to infinity. Our results hold for both fixed delay and distributed delay. Simulations demonstrate that the delay chemical Langevin approximation is accurate even at moderate system sizes. It captures dynamical features such as the spatial and temporal distributions of transition pathways in metastable systems, oscillatory behavior in negative feedback circuits, and cross-correlations between nodes in a network. Overall, these results provide a foundation for using delay stochastic differential equations to approximate the dynamics of birth-death processes with delay