Take the 2-minute tour ×  I am looking to evaluate the
hypothetical advantage one trading system has over another in
terms of the possible returns given their latency.  Irene
Aldridge wrote a piece (How Profitable Are High-Frequency
Trading Strategies?) which describes how to relate holding time
to Sharpe ratio, although her approach seems somewhat arbitrary.
As I am investigating the effect of latency on market making
strategies, I have modified this approach to use the maximal
spread in a time frame to be the return and the spread's
variance as risk (as the spread proxies for the risk of the
market maker).  Are there any other metrics I can make use of?
Does my approach thus far seem reasonable?  share|improve this
question add comment  1 Answer  up vote 11 down vote accepted
An interesting starting point is The Cost of Latency by Moallemi
and Saglam. After setting up a simple order execution problem
--- in which a trader must chose between a market order and a
limit order and guarantee execution over a f