fts_newlogo_vsmall.jpg FTS Interactive Market Trading Cases

Overview:  Participating in an FTS interactive market lets you experience how financial markets work. In each trading case the price discovery problem is tied to a learning objective.  In this way two important properties associated with financial markets, arbitrage and efficiency, drive learning in an FTS trading session.  For example, suppose the learning objective is the time value of money.  If someone in the trading crowd is not applying this concept correctly when trading then some other trader can exploit this in. By working through a case and preparing a support system to help you trade, you develop your analytical and model building skills.

 

Performance evaluation:  Performance is measured in every run, or trial, of an FTS trading case. A grade can be assigned taking into account both participation and average rank across multiple trials.  An example of a weighting scheme is 50% for participation and 50% for relative performance.

 

For Instructors: FTS Market Microstructure Treatments

For Students: Student Case Preparation Manual

 

FTS Demo Trading Case: Run the FTS Trader and click on the "Connect to FTS Demo" button.  Now you can participate in an actual class trading session for case B02.  A description of the B02 trading case is available below. This is the best way to learn the mechanics of trading.

 

Fixed Income Cases

         B01  An introduction to the FTS system and to the time value of money --- zero and coupon bond markets open in a constant interest rate world.

         B02  Zero and coupon bond markets open in a non constant interest rate world.  Time value of money, and introduction to cash matching and determination of the yield curve.

         B02A  Zero and coupon bond markets open with interest rate uncertainty and private information.  Extends the B02 economy to market efficiency and the yield curve.

         B03  Zero, coupon and forward markets open in the B02 world.  Time value of money (future value, present value), introduction to arbitrage free pricing and yield curves.

         B03A  Zero, coupon and forward markets open interest rate uncertainty and private information.  Extends the B03 economy to market efficiency and the yield curve. 

         B04  Managing interest rate risk using duration and the bond immunization theorem. 

         B05  More advanced fixed income case providing an introduction to interest rate trees.

         B06  This is trading case B05 with private information included.

         GC1  Zero and coupon bonds with a more general interest rate uncertainty structure and news headlines.

o    Excel Support for GC1 click on Specific Case Support

Stock Cases

         RE1  One of the most popular trading cases.  Introduces the concept of markets efficiency: do prices reflect all available information?

         RE2  An extension of RE1, adds arbitrage relationships in addition to informational efficiency.

         RE3  Opens a put and call option market in a RE1 type of market.  Considers the role of options in market efficiency.

         RP1  A three stock case mean variance efficiency case.

         RP2  A three stock mean variance efficiency case with analyst forecasts.

         CA0  An introduction to managing risk and return of a position.  This case is designed to let users consider the portfolio problem from a trading perspective.

         CA1  Price discovery for risk assets and risk premiums. Introduction to the CAPM.

         CA2  Provides an introduction to managing risk and return of a position in a world with exogenous prices

         CA2P  Provides an introduction to managing risk and return of a position in a world with exogenous prices and news headlines.

         CA3  Same trading environment as CA1 except with a risk loving traders.

         GC2  Trading case with price discovery involving both stocks and bonds with price discovery and news headlines.  Contrasts the pricing problem for fixed income securities versus stocks.

o    Excel Support for GC1 click on Specific Case Support

o    Note: the RE case spreadsheet also contains: A 1-stock version of RE1 with and without private information and as a double auction, a quote driven market, and an order driven market, and also quote driven and order driven variations of RE2.

Option Cases:  Binomial Option Pricing World

  • OP1:  Introduction to the one period option pricing problem.  Three markets have price discovery, European put/call same strike price and zero coupon bond and the underlying can be traded at a fixed price.  An excellent introduction to options, synthetic equivalents and put call parity. 
  • OP2:  Two period version of OP1 with American options.
  • OP3:  Three period version of OP1 designed around a delta hedging problem.
  • OP4:  Same as OP2 except that information is introduced and Options are European.
  • OP5:  Same as OP4 except options are American options. 
  • OP6:  Same as OP3 except private information and additional strike prices are introduced. 
  • OP7:  Same as OP6 except that options are American.
  • OP8:  More realistic underlying risk management problem.
  • OP9:  Advanced extension of OP1 to allow price discovery in all markets including the underlying.  Focuses attention on the role of the underlying spot price in the standard option pricing problem.

Option Cases Continuous Time World

  • ST1:  Delta hedging in a Brownian Motion world for stocks and stock options with exogenous prices. 
  • ST2:  Trading in a ST1 world with price discovery.
  • XR1:  Managing currency risk and option trading strategies using a real time support system.
  • XR2:  Managing currency risk and option strategies in the presence of exchange rate crises.

o    Real time option support for all of the above cases click on Option Case Support

Forward and Futures Cases

  • IN1:  Trading stock index futures and the cost of carry model for arbitrage free pricing. 
  • IN2:  Trading case IN1 plus private analyst forecasts. 
  • FX1:  Covered interest rate parity (spot and forward currency markets)
  • FX2:  Trading case FX1 plus private information
  • FX3:  Triangular arbitrage and Covered interest rate parity (spot and forward currency markets)
  • FX4:  Trading case FX3 plus private information

Swap and Related Markets 

  • SW0NoDayCount:  Interest rate swap markets using 1 swap desk (Each period is of equal time length 0.5 of a year)
  • SW0NoDayCountInfo:  Interest rate swap markets using 1 swap desk (SW0 + Private information + Equal length time periods) 
  • SW1:  Interest rate swap markets (Real world day count conventions, competing swap desks)
  • SW1NoDayCount:  Interest rate swap markets  (Each period is of equal time length 0.5 of a year, competing swap desks)
  • SW2:  Interest rate swap markets (SW1 + Private information + Real world day count conventions, competing swap desks ) 
  • SW2NoDayCount:  Interest rate swap markets (SW1 + Private information + Equal length time periods, competing swap desks) 
  • RM1:  An advanced risk management case based on constructing synthetic fixed rate loans using forward rate agreements, interest rate caps and floors

 

Pure Exchange Economy Cases