RE: Bid-offer Algorithm

Vince,

Thanks. Right now we will not do anything with
him yet.

Zimin

-----Original Message-----
From: Kaminski, Vince J
Sent: Thursday, September 20, 2001 10:57 AM
To: Lu, Zimin
Subject: RE: Bid-offer Algorithm

Zimin,

We can talk to him about the feasibility study.
The man problem is managing too many partners
and paying for what is a consulting service.
A lot depends also on where the relationship with
Prediction Co goes.

Vince

-----Original Message-----
From: Lu, Zimin
Sent: Wednesday, September 19, 2001 11:08 AM
To: Kaminski, Vince J
Cc: Lee, Bob
Subject: Bid-offer Algorithm

Vince,

Mary Nordstorm in RAC forwarded me this message from her friend
who is a consultant.

I think it does not hurt us if we prob his algorithm without
telling him anything.

Zimin

-----Original Message-----
From: Nordstrom, Mary
Sent: Wednesday, September 19, 2001 10:52 AM
To: Lu, Zimin; Lee, Bob
Subject: FW: Izzy Nelken

Over the past year, I've been doing a lot of work to one of the largest
Chicago market making firms in equity options. The project has to do with
the "Market Microstructure".

With high degree of accuracy we can predict where the stock price is going
to go in the next 15 seconds to 60 seconds. This technique can NOT be used
to predict where the stock will be tomorrow or even in the next hour. As
these are only short term predictions, the changes in the stock are usually
small. Therefore, this technique is of no use to day traders. However,
suppose you need to buy stocks anyway. For example, if you need to delta
hedge an option position and buy some stock, the model might tell you to
wait a few minutes and save a few pennies. Every time the stock moves and
the trader has to modify the position, they consult our model and decide on
their action: buy now or wait. Of course, this also works for "sell now or
wait". Indeed, we found out that they save about 3-4 cents per stock trade.
The market makers typically trade hundreds of millions of stocks a year so
this is quite interesting to them.

We also have a project with one of the major US banks to apply this to
foreign currency (forex) markets.

At this stage, it would be interesting to adapt this project to other
markets. For example crude oil comes to mind. The project involves two
stages:
a) A feasibility study to check if this is possible to do.
b) Building a real time system to give signals to the traders.

I think we can do step (a) independently without any commitment on your
part. We would then apply our models and see if we can come up with
anything interesting. We have access to "tick data" through a commercial
service called "e-signal". I believe that it is reasonably good. If you have
access to better tick data then it would be helpful for us to obtain several
days (perhaps two weeks) of tick data (bids, asks and trades which are time
stamped).

Izzy Nelken
Super Computer Consulting, Inc.
1070 Westfield Way
Mundelein, IL 60060 USA
(847) 837-0200
izzy@supercc.com
www.supercc.com