I feel the transition. With the availability of Big Data, the insight from complex systems research and the availability of new computing muscles to make larger simulations, the behavior of interacting agents can be analyzed on a large scale studying systemic aspects.
With my special interest in quantitative finance I read this article with excitement.
An ecological persecutive of the future of computer trading, Doyne Farmer and Spyros Skouras.
The objective of the idea is to look carefully into the market ecology for warning systems, systemic stability policy related to systemic risk.
Computers are now completely integrated into modern financial markets, but there is a lot of uncertainty about the impact and risk of high frequency (HFT) and algorithmic computer trading AT) and it poses challenges for regulators.
The authors introduce ecology and evolution (co-evelution) as key principles for understanding finical markets and trading.
The concluding ecological perspective emphasizes the c-evolution of computer trading, human trading, markets and regulators. This would allow the exploitation of the positive effects of AT and avoid the possible push of HFT towards anticompetitive, unfair directions.
New insight will most probably lead even lead inversely to new deal types for market specifics with related models and methods for valuation, portfolio construction and risk management.
The challenges are on the volume and type of data in uniform formats, all time stamped, possibly intelligent pre-processing, for, say, plausibility checks, multi-startegy and multi-method analysis on independencies, surrogate modeling for quick early warning diagnostics, ...
About my view on the Internet of Finance: here, here and here.
