Communication strategies for low-latency trading

Mina Karzand; Lav R. Varshney

doi:10.1109/ISIT.2015.7282830

Communication strategies for low-latency trading

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution

Abstract

The possibility of latency arbitrage in financial markets has led to the deployment of high-speed communication links between distant financial centers. These links are noisy and so there is a need for coding. In this paper, we develop a game-theoretic model of trading behavior where two traders compete to capture latency arbitrage opportunities using binary signalling. Different coding schemes are strategies that trade off between reliability and latency. When one trader has a better channel, the second trader should not compete. With statistically identical channels, we find there are two different regimes of channel noise for which: there is a unique Nash equilibrium yielding ties; and there are two Nash equilibria with different winners.

Original language	English (US)
Title of host publication	Proceedings - 2015 IEEE International Symposium on Information Theory, ISIT 2015
Publisher	Institute of Electrical and Electronics Engineers Inc.
Pages	2121-2125
Number of pages	5
ISBN (Electronic)	9781467377041
DOIs	https://doi.org/10.1109/ISIT.2015.7282830
State	Published - Sep 28 2015
Event	IEEE International Symposium on Information Theory, ISIT 2015 - Hong Kong, Hong Kong Duration: Jun 14 2015 → Jun 19 2015

Publication series

Name	IEEE International Symposium on Information Theory - Proceedings
Volume	2015-June
ISSN (Print)	2157-8095

Other

Other	IEEE International Symposium on Information Theory, ISIT 2015
Country/Territory	Hong Kong
City	Hong Kong
Period	6/14/15 → 6/19/15

ASJC Scopus subject areas

Theoretical Computer Science
Information Systems
Modeling and Simulation
Applied Mathematics

Online availability

10.1109/ISIT.2015.7282830

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Karzand, M., & Varshney, L. R. (2015). Communication strategies for low-latency trading. In Proceedings - 2015 IEEE International Symposium on Information Theory, ISIT 2015 (pp. 2121-2125). Article 7282830 (IEEE International Symposium on Information Theory - Proceedings; Vol. 2015-June). Institute of Electrical and Electronics Engineers Inc.. https://doi.org/10.1109/ISIT.2015.7282830

Communication strategies for low-latency trading. / Karzand, Mina; Varshney, Lav R.
Proceedings - 2015 IEEE International Symposium on Information Theory, ISIT 2015. Institute of Electrical and Electronics Engineers Inc., 2015. p. 2121-2125 7282830 (IEEE International Symposium on Information Theory - Proceedings; Vol. 2015-June).

Research output: Chapter in Book/Report/Conference proceeding › Conference contribution

Karzand, M & Varshney, LR 2015, Communication strategies for low-latency trading. in Proceedings - 2015 IEEE International Symposium on Information Theory, ISIT 2015., 7282830, IEEE International Symposium on Information Theory - Proceedings, vol. 2015-June, Institute of Electrical and Electronics Engineers Inc., pp. 2121-2125, IEEE International Symposium on Information Theory, ISIT 2015, Hong Kong, Hong Kong, 6/14/15. https://doi.org/10.1109/ISIT.2015.7282830

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Communication strategies for low-latency trading

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