Homework ?
This is a small homework, counting 1/3 times as much as a large homework.
Due ????
Instructions:
Listen to the recent Planet Money podcast titled, "A Father of High-Speed Trading Thinks We Should Slow Down," available at http://www.npr.org/blogs/money/2013/06/14/191668134/episode-396-a-father-of-high-speed-trading-thinks-we-should-slow-down. You can also subscribe to Planet Money in iTunes.
As you listen answer the following questions by typing thoughtful answers. These are short-answer, not essay questions, but I want more than one sentence for each answer. So long as you sound intelligent, don't worry about polished writing or perfect grammar.
Motivation
Some of our graduates work on farms, where they trade futures and options to help protect themselves from low prices. Others, like Joanna Litchfield, work for the Chicago Mercantile Exchange, helping to run these markets. Banks are frequent hires of our graduates, and for them to move up to high positions they must understand how the financial sector operates, and especially the role of math and computers. This podcast tells the history of computers in financial trading, helping the student understand why simple tools like histograms are so important, and also how the use of computers can have bad consequences.
In our chapter on histograms I tell the story of how bad histograms helped cause the 2008 Financial Crisis. This podcast covers a different story, of how computers trading with other computers can cause markets to go berserk.
Questions
(1) Where was Thomas Peterffy born, and what was the first good he bought and sold for money? One sentence is sufficient.
(2) Early in his career Peterffy has a unique method of trading options. His decisions about what to buy or sell were made using different tools. What was so different about his trading methods? Write a short paragraph on what made Peterffy's an innovative trader, going into considerable detail.
(3) Peterffy got in trouble with the NASDAQ exchange for excessive reliance on computers. He used computers to submit market orders (like, to buy or sell an option), but was told that market orders must be inputted using the keyboard. How did he comply with this restriction? One sentence is sufficient.
(4) Today, where computers are making many of the decisions about what to buy and sell, does distance from the computer to the exchange matter? That is, with the advent of modern computers, is there still an advantage of having your computer close to the exchange, or can you compete just as well half-way around the world? Explain in a short and detailed paragraph.
