The Taub Faculty of Computer Science Events and Talks

Establishing a low network latency connection to stock exchanges has been the desire of trader for years. A well-known example is the extremely expensive construction of an ultra-low latency fiber optic cable between New York and Chicago just for reducing three millisecond in the round trip time. Yet, the exact possible usage and potential profitability of such high end network connection remains mostly unclear. In this Thesis, we address this point by studying the impact of latency on the profitability of traders. We concentrate on the single security, single exchange case and use the Geometric Brownian Motion (GBM) model as the underling model for stock prices. Using this model, we are able to quantify the potential profit of traders as a function of their latency. Moreover, using the intra-day security prices of the AAPL and the GOOG shares we verified that indeed this model can be used for real life data.