Actual return

, 84, 86

Address

, 79, 110, 172

Bitcoin

, 169, 171

cryptocurrency

, 148

Algorand

, 167

Algorithmic trading

, 68, 75–77

Almgren–Chriss efficient trading frontier

, 85–89

Bertsimas–Lo dynamic programming strategy

, 81–84

implementation shortfall (IS)

, 84

participation weighted price (PWP)

, 81

percentage of volume (PoV)

, 81

time weighted average price (TWAP)

, 79–80

volume weighted average price (VWAP)

, 80–81

All or Nothing (AON)

, 73

Almgren-Chriss

, 85–89

American call

, 17

American put

, 49, 54

Annuity

, 9

Anonymity

, 68, 146, 170

Arbitrage

, 122

covered interest rate parity

, 124

index fund arbitrage

, 125

put–call parity

, 123–124

statistical arbitrage

, 125

tick trading

, 124–125

Arbitrageur

, 77, 122, 124

Asset sub-classes

, 91, 92

Attack

, 155–156

Auction

, 73, 74, 75

Backtesting

, 76

Backward difference

, 52

Backward form

, 49

Bellman equation

, 82, 83

Benefit-cost ratio

, 7, 8

Bertsimas-Lo

, 81–84

Bid

, 26, 72

Bid-ask spread

, 70, 73, 120, 126

Big-oh

, 51

Binomial

option valuation

, 19, 22

probability

, 20

tree

, 20, 21, 22

BIP. See Bitcoin Improvement Protocol (BIP)

Bitcoin

, 145, 153

ATMs

, 161

blockchain

, 166

decentralisation

, 170

economic bubble

, 163

Ethereum

, 172

monetory policy

, 170

updation rules

, 154

Bitcoin Improvement Protocol (BIP)

, 158

Black-Scholes-Merton

, 27, 29–32, 49, 54

Blockchain

Bitcoin

, 171

blocks of transactions

, 137–138

cryptography

, 129–133

distributed computing

, 133–136

distributed public ledger

, 140–142

Ethereum

, 172

permissionless vs. permissioned blockchain

, 143

public ledger

, 138–139

transactions

, 137

Block reward

, 150–151

Bonds

, 117, 118

discount

, 10

par

, 10

premium

, 10

Boundary conditions

, 17, 49, 50, 54, 55

Bracket Order

, 74

Brokers

, 67, 69, 73

Byzantine agreement

, 134–135

Capital asset pricing model (CAPM)

, 98, 100, 109

Capital market line

, 98, 99

Central bank

, 164–165

Client-server

, 133

Coinbase transaction

, 151

Collision

, 130, 131, 139, 148

resistant

, 130, 139, 148

Co-location

, 76, 119

Commission

, 67, 73, 173

Commitment

, 4, 120, 132, 146

Commodities

, 17, 67, 125

Conditional value-at-risk (CVaR)

, 109–112, 110, 111, 118

Consensus algorithm

, 142, 173

Consensus protocol

, 135–136, 174, 175

Consol

, 9

Constant re-balanced portfolio (CRP)

, 104, 105, 107

Contract

fee

, 12, 13, 14, 16, 17, 18

forward

, 3, 17, 27–29, 124

futures

, 3, 11, 17–18

Copulas

, 109, 115–118

Corda

, 177

Coupon

rate

, 9, 10

value

, 9, 10

Covered call

, 15

Covered interest rate parity

, 124

Crank-Nicolson

, 50–53

Crossing networks

, 68–69

CRP. See Constant re-balanced portfolio (CRP)

Cryptocurrency

address

, 148

exchange

, 160–161, 170

Cryptographic hash function

, 129–131

Cryptography

digital signature schemes

, 132–133

hash function

, 129–131

random oracle

, 131

Currencies

, 4, 69, 151, 160, 174

CVaR. See Conditional value-at-risk (CVaR)

Dark pool

, 69, 72

Delta

hedging

, 32, 34

neutrality

, 34

Derivatives

, 3, 25, 32, 125

Differential rate of return

, 112, 113, 115

Difficulty

, 131, 149, 150, 166, 172

updation

, 153

Diffusion coefficient

, 58

Diffusion equation

, 49, 50

Digest

, 129, 130, 149, 151

Digital currency

, 164–165

Digital signature

, 145

schemes

, 132–133, 135

Direct market access

, 68

Discounted present value (DPV)

, 7, 8, 9, 31

Discrete time

, 57, 85

Discrete Wiener process

, 57

Distributed computing

, 133

Byzantine agreement

, 134–135

consensus protocol

, 135–136

gossip protocol

, 134

peer-to-peer network

, 134

Distributed public ledger

, 140–142, 143

Diversification

, 91

Dividend

, 27, 32, 37

Double spending

, 154–155

Drift term

, 58

Dynamic programming

, 81–84

Early exercise

, 19, 22

ECN. See Electronic communication network (ECN)

Efficient frontier

, 94, 97, 99

Efficient market hypothesis (EMH)

, 77–78

Efficient portfolio

, 94, 96, 97

Efficient trading frontier

, 85–89

e-governance

, 179

Electronic communication network (ECN)

, 69

Electronic stock exchange

, 68

Ether

, 172, 173

Ethereum

, 143, 171, 173, 177

Euler discretisation

, 58, 59

European call

, 12, 13, 32, 123

European put

, 13, 14, 32, 123

Exchange

, 4, 68, 74, 120, 164

Exercise value

, 54

Expected utility

, 41, 43, 44, 45

Expiry date

, 11, 18, 61, 123

Factor model

, 101

Fair gamble

, 42

Fill or Kill (FOK)

, 73

Financial instrument

, 3, 4, 67, 72, 125

Finite difference mesh

, 51–53

Finite difference method

American options

, 53–56

Crank-Nicolson method

, 50–53

Fintech

, 177–178

First-order stochastic dominance (FSD)

, 41–43, 63

FOK. See Fill or Kill (FOK)

Forgery

, 133

Forks

, 142, 158–160

Forward difference

, 52

Forward form

, 49

Forward testing

, 77

Free boundary value problem

, 53

FSD. See First-order stochastic dominance (FSD)

Fungibility

, 67

Gamma

, 33, 34

Gaussian copula

, 116, 117, 118

Geometric Brownian motion

, 27, 29, 58, 59

Global Payment Initiative (GPI)

, 178

Gossip protocol

, 134, 150

Greek

, 32–34

Growth function

, 103

Hard fork

, 159, 170, 173

Hash function

domain

, 129

random oracle

, 131

range

, 129

Hash rate

, 151–152

Hedge

, 34, 71

funds

, 76

High-frequency trading (HFT)

arbitrage

, 121–125

characteristics

, 119

defined

, 119

limit order book

, 120–121

market making

, 120

market manipulation

, 125–126

mean reversion and pairs trading

, 121

IBM Blockchain

, 178, 179

Immediate or Cancel (IOC)

, 73

Immutability

, 139, 140

Implementation shortfall (IS)

, 84, 87

Index funds

, 77

arbitrage

, 125

Inflation

, 153

In-out parity

, 39

Institutional investor

, 76, 125

Internal rate of return (IRR)

, 7, 8, 9

Investment banks

, 177

IOC. See Immediate or Cancel (IOC)

IS. See Implementation shortfall (IS)

Itô stochastic differential equation (SDE)

, 58

Kelly criterion

, 102, 108

Kelly value

, 102

Lagrange multipliers

, 87, 94, 96

Layering

, 126

Lightning network

, 165–166

Limit on Close (LOC)

, 73

Limit on Open (LOO)

, 73

Limit orders

, 73, 80, 120–121

Linear complementarity problem

, 54

Linear equations

, 52, 98

Linear impact functions

, 87–89

Link

, 115, 138

Liquidity

, 69, 70, 174

Live feed

, 68

Live testing

, 77

LOC. See Limit on Close (LOC)

Logistics management

, 178

Lognormal distribution

, 21, 28, 36

Long

, 71–72

LOO. See Limit on Open (LOO)

Market depth

, 72

Market-if-Touched

, 74

Market impact

, 70, 85

Market inefficiencies

, 78, 120, 125

Market maker

, 69–70

Market making

, 120

Market manipulation

, 125–126

Market microstructure

algorithmic trading

, 75–77

efficient market hypothesis (EMH)

, 77–78

order

, 73–74

order matching algorithms

, 74–75

trading systems

, 68–69

Market on Close (MOC)

, 73

Market on Open (MOO)

, 73

Market order

, 73, 74

Market portfolio

, 98, 99, 100

Market risk

, 29, 99

Market taker

, 70

Marking to market

, 18

Markowitz portfolio optimisation

, 92

capital asset pricing model

, 98–100

issues

, 100–101

risk-free asset

, 96–98

two fund theorem

, 95–96

MasterCard Blockchain

, 178

Maturity period

, 9, 15, 39

Mean reversion

, 121

Mid-Price Peg

, 74

Milstein

, 58

Mining

, 133, 151

pools

, 157

MOC. See Market on Close (MOC)

Monte Carlo integration

, 61–62

Monte Carlo simulation

, 57

MOO. See Market on Open (MOO)

Mutual funds

, 76, 125

Nakamoto

, 169

No-arbitrage

, 54, 123–124

Non-repudiability

, 132

Normal distribution

, 25–26, 31, 36, 57–58, 110

Notional value

, 113–115

Off exchange

, 4, 11, 35

One cancels other

, 74

One-fund theorem

, 98

One sends other

, 74

One-way

, 107, 109, 119, 130–131, 139, 149

Optimal exercise price

, 54

Option

American

, 12, 35, 53–56, 59–61

Asian

, 35–37

asset-or-nothing

, 37

average

, 35

barrier

, 38–39

binary

, 37–38

call

, 11, 12, 13, 15, 31, 34, 38, 39, 123

cash-or-nothing

, 37

digital

, 35, 37–38

down-and-in

, 38, 39

down-and-out

, 38, 39

European

, 12, 15, 59, 61

extinguishable

, 38

knock-in

, 38, 39

knockout

, 38, 39

lightable

, 38

path-dependent

, 38

plain vanilla

, 12, 35, 39

put

, 11, 12, 14, 37, 72, 124

Order

book

, 72–73

definition

, 73–74

first-order stochastic dominance

, 41–43, 63

matching algorithms

, 74–75

profit

, 7

second-order stochastic dominance

, 43–45, 63

Order-to-trade

, 119

Orphan blocks

, 142

Ouroboros

, 167

Over-the-counter (OTC)

, 4, 68

Pairs trading

, 121–122

Paper value

, 86

Participation weighted price (PWP)

, 81

Payoff

, 11–14, 22, 38–39, 59–60, 100

Peer-to-peer (P2P) networks

, 134–135, 140, 147–140, 160, 173

Penny jumping

, 80

Pension funds

, 76

Percentage of volume (PoV)

, 81

Perfect market

, 3

Permissioned blockchain

, 143, 177

Permissionless blockchain

, 143, 173, 177

Perpetuity

, 9

Portfolio optimisation

capital asset pricing model

, 98–100

definition

, 91

Kelly Criterion

, 101–103

Markowitz portfolio optimisation

, 92–95

risk-free asset

, 96–98

two fund theorem

, 95–96

universal portfolios

, 103–108

Portfolio risk

, 116

Portfolio weights

, 91

Position

long

, 12, 13, 15, 71, 113

short

, 12, 13, 15, 71, 113

PoV. See Percentage of volume (PoV)

P2P networks. See Peer-to-peer (P2P) networks

Premium

, 10, 11, 13, 35, 126

Price level

, 72

Price of risk

, 99

Price/time algorithm

, 75

Proof of stake

, 166–167

Proof of work

, 149–150, 166

Proprietary trading algorithms

, 120

Pro-rata matching

, 75

Public key

, 145–148, 150–151, 155, 161

Public ledger

, 138–140, 143, 155

Pump and dump

, 125–126

Put-call parity

, 97

Quadratic optimisation

, 94, 103

Quadratic programming

, 94

Quorum

, 177

Quote Stuffing

, 126

R3

, 177

Random oracle

, 131, 150

Rate of creation

, 151–152

Rate of return

, 7, 26, 45, 92, 97, 112–113

Recipient public key

, 146–148, 150–151, 155, 161

Regression

, 61

Rejection sampling

, 58

Relative position

, 113, 115

Reward-to-variability ratio

, 112

Rho

, 33, 34

Ripple

, 173–175, 177

Risk

, 3–4

bond

, 29

conditional value-at-risk (CVaR)

, 109–112

copula

, 115–118

portfolio

, 91, 93–94

reduce/elimination

, 14

risk-averse trading strategy

, 85, 87

risk-free asset

, 96–98, 103

risk-free interest rate

, 7, 27–28, 31, 45

risk-neutral valuation criterion

, 19–20, 22

Sharpe ratio

, 112–115

value-at-risk (VaR)

, 109–112

Risk averse

, 41–42, 85, 87

Risk aversion

, 42, 87, 89

Risk-free interest

, 7, 27–28, 32, 103, 123–124

Risk-neutral probability

, 20, 22, 36

Robust portfolio optimisation

, 100–101

Rule change

, 159

Runge-Kutta

, 58

Satoshi

, 169

Second-order stochastic dominance (SSD)

, 43–45, 63

Second pre-image resistant

, 131, 148

Secret key

, 132, 147

Self financing property

, 29

Semi-strong efficient market hypothesis (EMH)

, 77

Shares

, 67, 79, 81–82, 87, 91, 157

Sharpe ratio

, 112–115, 118

Short

, 70–71

Sidechain

, 166

Signing key

, 146–148, 161, 171

Simulation

, 57–61

Sklar's theorem

, 115

Smart contracts

, 137, 143, 162, 166, 171–173

Soft fork

, 159

Spender public key

, 146–148, 155

Spoofing

, 126

Stable

, 53

Stablecoin

, 162

Stale blocks

, 142

Standard & Poor (S&P)

, 100

Statistical arbitrage

, 125

Stochastic dominance

, 63

first-order stochastic dominance (FSD)

, 41–43

second-order stochastic dominance (SSD)

, 43–45

third-order stochastic dominance (TSD)

, 45, 63

Stochastic process

, 25–26, 28, 59

Stock exchange

, 67

electronic stock exchange

, 68

trading decision

, 119

Stocks

, 67–69, 91, 109, 120, 125

Stop order

, 74

Straddle

bottom

, 15

top

, 15

Strategy

calendar-spread

, 16

closed

, 29

dynamic

, 29

price-spread bearish

, 16

bullish

, 16

butterfly

, 16, 17

replicating

, 29

time-spread

, 16

Strike price

, 3, 13, 15, 16, 72, 124

Strong effiient market hypothesis (EMH)

, 77

Supply chain management

, 178–179

Swap

, 3, 4

SWIFT

, 178

Symmetric central-difference

, 51–52

Systemic risk

, 91

Tail correlation

, 117–118

Tail dependence

, 117–118

t-copula

, 116, 118

Theta

, 33, 34

Third-order stochastic dominance (TSD)

, 45, 63

Tick

, 72

trading

, 124–125

Time weighted average price (TWAP)

, 80

Trading systems

, 68–69

Transaction

blocks of

, 137–138

confirmation of

, 154

cost

, 3, 69, 122

definition

, 137

fees

, 68

public ledger

, 138–139

strategies

, 15

types

, 12

Transitivity

, 64

TSD. See Third-order stochastic dominance (TSD)

Turing complete

, 171

TWAP. See Time weighted average price (TWAP)

Two-fund theorem

, 96

Ultra-low latency direct market access (ULLDMA)

, 76, 120

Underlying asset

, 3, 12, 15, 19, 34, 162

Undiversifiable risks

, 91, 109

Universal portfolios

, 103–108

algorithm

, 106–107

Value

face

, 9, 10

principal

, 9

Value-at-risk (VaR)

, 109

Vega

, 33, 34

Verification key

, 132–133, 137, 148

Volatility

asset risk

, 4

investments

, 30

mean

, 121

price volatility

, 163

stocks

, 27

Volume weighted average price (VWAP)

, 80–81

von Neumann-Morgenstern utility

, 5, 42

Wallet

, 170

Weak EMH

, 77

White noise process

, 82

Wiener process

, 57–58

XRP

, 173–174

Yield to maturity

, 9, 10

Zero-investment strategy

, 113–115

Ziggurat method

, 58