Communication strategies for low-latency trading

Mina Karzand, Lav R Varshney

Research output: Chapter in Book/Report/Conference proceedingConference 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 languageEnglish (US)
Title of host publicationProceedings - 2015 IEEE International Symposium on Information Theory, ISIT 2015
PublisherInstitute of Electrical and Electronics Engineers Inc.
Pages2121-2125
Number of pages5
ISBN (Electronic)9781467377041
DOIs
StatePublished - Sep 28 2015
EventIEEE International Symposium on Information Theory, ISIT 2015 - Hong Kong, Hong Kong
Duration: Jun 14 2015Jun 19 2015

Publication series

NameIEEE International Symposium on Information Theory - Proceedings
Volume2015-June
ISSN (Print)2157-8095

Other

OtherIEEE International Symposium on Information Theory, ISIT 2015
CountryHong Kong
CityHong Kong
Period6/14/156/19/15

Fingerprint

Telecommunication links
Latency
Arbitrage
Nash Equilibrium
Communication
Coding
Tie
Financial Markets
High Speed
Trade-offs
Game
Binary
Strategy
Model
Financial markets

ASJC Scopus subject areas

  • Theoretical Computer Science
  • Information Systems
  • Modeling and Simulation
  • Applied Mathematics

Cite this

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). [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 proceedingConference 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
Karzand M, Varshney LR. Communication strategies for low-latency trading. In 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). https://doi.org/10.1109/ISIT.2015.7282830
Karzand, Mina ; Varshney, Lav R. / Communication strategies for low-latency trading. Proceedings - 2015 IEEE International Symposium on Information Theory, ISIT 2015. Institute of Electrical and Electronics Engineers Inc., 2015. pp. 2121-2125 (IEEE International Symposium on Information Theory - Proceedings).
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