High Frequency Trading Strategy for the 30 Year Treasury Bond

30 Pages Posted: 13 Mar 2020

See all articles by Peter Decrem

Peter Decrem

Citibank, N.A. - Citi Fixed Income Currency & Commodities

Sasha Stoikov

Cornell Financial Engineering Manhattan

Shuo Shen

Cornell University

Jiaxin Yin

Cornell University

Yikai Hua

Cornell University

Tengxiao Li

Cornell University

Zhengyi Fang

Cornell University

Yunze Huang

Cornell University

Colin Basco

Cornell University

Date Written: February 10, 2020

Abstract

We construct new features based on order book data and separate them into three groups, e.g., time-insensitive features, time-sensitive features and cointegration features. For time-insensitive features, we applied serval transformation on imbalance in different levels, and some other features based on order book data. For time-sensitive features, we constructed features with historic information. Besides, we extracted information about deleting and adding order book to construct features on it. For cointegration, we applied linear regression, online regression and Kalman filter to both the treasury data and the corresponding futures data to construct cash and futures cointegration features separately. Then, we predicted the fair-price for each quote given each single feature and combination of features. At last, we designed two smart algorithms to trade 30 Year Treasury Bond given the predicted fair-price. We found that combination features from different groups can help to reduce transaction cost by 95% compared with one tick-size. We believe that the new features we constructed can extract more information from order book, and can be very effective for trading strategies.

Keywords: 30 Year Treasury Bond, Online Regression, Cointegration, Kalman Filter

JEL Classification: G12, C13, C14, C20, C30, C80

Suggested Citation

Decrem, Peter and Stoikov, Sasha and Shen, Shuo and Yin, Jiaxin and Hua, Yikai and Li, Tengxiao and Fang, Zhengyi and Huang, Yunze and Basco, Colin, High Frequency Trading Strategy for the 30 Year Treasury Bond (February 10, 2020). Available at SSRN: https://ssrn.com/abstract=3535756 or http://dx.doi.org/10.2139/ssrn.3535756

Peter Decrem

Citibank, N.A. - Citi Fixed Income Currency & Commodities ( email )

390 Greenwich Street
4th Floor
New York, NY 1001
United States

Sasha Stoikov (Contact Author)

Cornell Financial Engineering Manhattan ( email )

2 W Loop Rd
New York, NY New York 10044
United States

HOME PAGE: http://www.sashastoikov.com

Shuo Shen

Cornell University

Ithaca, NY
United States

Jiaxin Yin

Cornell University

Ithaca, NY
United States

Yikai Hua

Cornell University

Ithaca, NY
United States

Tengxiao Li

Cornell University ( email )

Ithaca, NY 14853
United States

Zhengyi Fang

Cornell University

Ithaca, NY
United States

Yunze Huang

Cornell University

Ithaca, NY
United States

Colin Basco

Cornell University

Ithaca, NY
United States

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