This concise 140-page introduction to financial engineering is structured in six chapters. The content addresses the most relevant topics required to grasp the basics of financial engineering and high-frequency trading.

Starting with a very short introduction in the first chapter, the authors move straight ahead to the financial markets and associated instruments in the second chapter and introduce the financial exchanges, exchange traded funds (ETFs), and financial instruments (options, futures contracts). Once a basic understanding of these concepts is achieved, the follow-up chapter enters the world of quantitative finance and mathematics. Covering Brownian motion models, pricing models, and the famous capital asset pricing model, the chapter shows the mathematical expressions of these concepts and highlights how portfolio management can leverage them. Trading is covered in the fourth chapter, which introduces the trading positions (long, short) and then moves at a fast pace into specific trading strategies (pairs trading, trend following). The basic idea is simple and relates in most cases to diversifying the trading budget on correlated assets and then performing a mix of buy and sell actions on them. Backtesting such trading strategies is essential before going live, and the authors provide some insights into how this testing can be done. Risk management relates to measuring how much the expected return of an n-item based portfolio differs from the theoretical average. For portfolios built from several assets, estimation of the risk can be obtained from algebraic properties of a matrix representing the cross-correlations between all the pairwise asset returns. The mathematical operations to analyze this matrix are computationally expensive, and several algorithms based on approximation techniques do exist. The latter are introduced in chapter 5. The last chapter of the book (chapter 6) is focused on how to implement fast-frequency trading strategies without affecting the overall market. Because large orders will be detected by other trading parties, several approaches exist for packaging one large order into several smaller-sized orders. This is commonly known as a macrostrategy. Furthermore, the specific order and matching on these strategies is also known as a limit order book. Besides detailing how a limit order book can be abstracted and modeled, the authors also provide some insights into how high-frequency trading can benefit from various system-level optimizations (FPGA9) and network-level optimization (TCP-level acceleration).

I recommend the book to a targeted audience interested in the nitty-gritty of trading algorithms and their implementation. Its concise style and compact mathematical treatment ensure fast-paced reading, but require additional reading material [1] before one can start to implement a real trading system.