FTS User Guide
Overview
The trading cases that underlie the FTS system are contained in a Windows help file called FTSCASE.HLP. This file is installed, and an icon created, on each computer when you install the traders. Since the help file is always available, traders can access each case at any point in time (including during the trading session if needed).
Each FTS case defines a different market environment for traders on the FTS system. A market environment is a set of securities, a market institution (a book of depth n where n is specified, automatic bid/ask crossing set on or off), and a set of trader types where trader types are defined by their endowments, market making/taking rights per security, and their trading objective.
The system also allows traders to print a hard copy of each case if desired.
Running FTSCASE.HLP
In the installation the FTS Cases icon will be included in the Financial Trading System group. To run this program merely double-click on this icon. The following screen will appear:
You can see the different classes of trading cases in buttons at the top of the screen:
These are described next.
Fix-Inc (Fixed-Income): This is a class of cases that first introduce traders to the time value of money and trading debt securities over multi-periods. In B03 and B3A both bond and forward markets are opened. In B04 traders are introduced to a risk management problem. That is, each trader manages a position that is exposed to shifts in the yield curve.
Eff-Mkts (Efficient Markets Hypothesis): This is a set of trading cases (RE1, RE2, RE3, RE4, and RE5) that focus traders on the question "where do prices come from" as well as the informational role of price. In each case traders are provided with private information and the market as a whole knows more than any individual trader.
In RE1, RE2, RE4 stock markets are opened and in RE3 and RE5 both stock and option markets are opened.
CAPM (Capital Asset Pricing Model): In this set of cases traders are required to manage both the risk (portfolio standard deviation) and return of their position.
In Case CA0, traders take prices as given and simply learn how to apply diversification principles. In trading case CA1 traders in the market can both make and take market and learn about arriving at equilibrium prices for risky cash flows. In CA2 prices are fixed, so traders focus upon managing the risk and return of their position. In CA3 traders are rewarded for assuming risk (i.e., portfolio standard deviation). Again, in this trading environment price discovery when each trader's risk objectives have changed is the major issue for the case.
Options: In these cases the market environments allow traders to experience all of the essential principles underlying modern option pricing theory. The stock price process used in each of these environments is generated by the binomial model.
Stk Hdg (Stock Options): Here derivative security markets are opened on a stock whose price changes are generated from either the geometric brownian motion model or the real world. The focus is on applying hedge parameters to manage risk.
Forex (Foreign Exchange Options): In these cases foreign exchange rates, currency options and futures markets are opened. Traders can apply different option trading strategies to trading environments where option prices are Black-Scholes, but the underlying true process contains jumps (XR1), or changing volatility (XR2).
If you click on these buttons, you will see the list of cases in that category.
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