FTS Trading Cases

Overview:  By participating as part of the trading crowd in an FTS interactive market you will learn fundamental concepts in finance from personal trading experience. 

Anatomy of a FTS Case:  In each trading case the price discovery problem is tied to the 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 exploits this in an efficient market.

Performance evaluation:  Unlike the real world, time in the virtual FTS trading world is case specific.  For example, a trading trial covering ten years may be completed in 15-minutes of FTS trading time.  This allows trading performance to be measured relative to long run performance in each trial.  Based upon this performance grade can then be assigned taking into account both participation and average rank within the trading crowd across repeated trials.  An example of a weighting scheme is 70% for participation and 30% for relative performance.  In this example, a trader who ranks first in every trading trial earns 10/10 and a trader who ranks last in every trial earns 7/10.  Of course attaining 10/10 is very difficult in a competitive classroom trading session over repeated independent trials.

FTS Cases by Markets

FTS Demo Trading Case

B02Demo  Run the FTS Trader and click on the "Connect to FTS Demo" button.  Now you can experience interactively an actual class trading session that ran B02.  A description of the B02 trading case is available below.

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 where the yield curve comes from.

  •  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  More advanced fixed income case covering 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.

Stock Cases

  • RE1  One of the most popular trading cases.  Introduces the dividend model and the concept of efficient stock markets (strong, semi-strong and weak form efficiency).

  • RE2  Introduction to the concepts of arbitrage and informational efficiency.

  • RE3  Opens a put and call option market in a RE1 type of market.  Considers option trading strategies and market efficiency.

  • CA0  Provides 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  Provides an introduction to CAPM from the perspective of a risk averse trader and price discovery.

  • 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 apart from viewing the trading problem from the perspective of a risk loving trader.

  • 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..

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 and options are American options.

  • OP3:  Three period version of OP1 designed around a delta hedging problem.

  • OP4:  Same as OP3 except that information is introduced.

  • 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.

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

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Swap and Related Markets

  • SW1:  Interest rate swap markets 

  • SW2:  Interest rate swap markets (SW1 + Private information) 

  • RM1:  Visual introduction to binomial option pricing model