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QFRC Occasional Lecture - Ulrich Horst

QFRC Occasional Lecture

Optimal Display of Limit Orders - On the Interaction of Upstairs and Downstairs Markets

Professor Ulrich Horst



We develop a microstructure model of a public and order-driven exchange that competes for order flow with off-exchange trading mechanisms. Large investors have the strategic freedom to either trade in the primary or in the off-exchange market. Liquidity suppliers in the primary market face a trade-off between the costs and benefits of order exposure. If liquidity suppliers display their trading intentions, they can elicit order flow from latent investors and lead to mutually beneficent trades. In contrast, hidden orders can lead to significant adverse effects for the individual and the market as a whole. Hidden orders reduce the likelihood to attract (latent) counterparties and thus miss out on "frictionless" trades. Ultimately, traders have to cancel unfilled hidden orders and pay a higher premium (the effective spread). At the same time, unfilled and outstanding hidden orders cause significant price pressures that are not related to information. In particular, we show that large hidden orders can significantly impair price efficiency. The talk is based on joint work with G. Cebiroglu and N. Hautsch.

After graduating with a PhD in Mathematics from Humboldt-Universität zu Berlin in 2000, Ulrich Horst spent several years teaching in Germany and North America. He held visiting positions at several universities including the Departments Economics and of Operations Research and Financial Enginnering at Princeton University, the Institute for Mathematical Economics at Bielefeld University, the Center for Mathematical Modelling at the Universidad de Chile and Universite Paris Dauphine. Before he returned to Berlin in the summer of 2007 he was an Assistant Professor at the department of mathematics at the University of British Columbia in Vancouver.

Ulrich Horst was Deutsche Bank Professor of Applied Mathematical Finance at Humboldt-Universität and the Scientific Director of the Deutsche Bank sponsored Quantitative Products Laboratory. Since 07/2012 he is a board member of the DFG Research Center Mathematics for Key Technologies and scientist in charge of its Application Area E. 

Date:           Thursay 3 April 2014          

Time:          4:00pm-5:00 pm

Location:     City - Haymarket CM05D.03.01

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3 April 2014
16:00 - 17:00
City - Haymarket CB05D LEVEL 3: Finance Seminar Room 5D3.01
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Caroline Dobson
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