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The Science of Algorithmic Trading and Portfolio Management by Robert Kissell

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Chapter 7

Advanced Algorithmic Forecasting Techniques

Chapter 7 introduces readers to advanced algorithmic forecasting techniques. We provide insight into different market impact modeling formulations (such as in terms of various different trading strategies) in order to be able to generate actionable information sets in a timely manner. These different model structures are compared in order to understand where the approaches work well and where there may be inherent limitations in the approach. The chapter continues with a discussion of the various sources of algorithmic trading risk with special emphasis on liquidity risk. We provide techniques to forecast the different liquidity terms, e.g., daily volumes and monthly ADV. These forecasting ...

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