Related papers: Dark-Pool Perspective of Optimal Market Making
Starting from the Avellaneda-Stoikov framework, we consider a market maker who wants to optimally set bid/ask quotes over a finite time horizon, to maximize her expected utility. The intensities of the orders she receives depend not only on…
Market making is a fundamental trading problem in which an agent provides liquidity by continually offering to buy and sell a security. The problem is challenging due to inventory risk, the risk of accumulating an unfavourable position and…
In this article, we tackle the problem of a market maker in charge of a book of options on a single liquid underlying asset. By using an approximation of the portfolio in terms of its vega, we show that the seemingly high-dimensional…
Volume imbalance in a limit order book is often considered as a reliable indicator for predicting future price moves. In this work, we seek to analyse the nuances of the relationship between prices and volume imbalance. To this end, we…
We study the problem of allocating stocks to dark pools. We propose and analyze an optimal approach for allocations, if continuous-valued allocations are allowed. We also propose a modification for the case when only integer-valued…
In this research, we develop a trading strategy for the discrete-time optimal liquidation problem of large order trading with different market microstructures in an illiquid market. In this framework, the flow of orders can be viewed as a…
Market making refers to a form of trading in financial markets characterized by passive orders which add liquidity to limit order books. Market makers are important for the proper functioning of financial markets worldwide. Given the…
As the FX markets continue to evolve, many institutions have started offering passive access to their internal liquidity pools. Market makers act as principal and have the opportunity to fill those orders as part of their risk management,…
This paper studies Markov perfect equilibria in a repeated duopoly model where sellers choose algorithms. An algorithm is a mapping from the competitor's price to own price. Once set, algorithms respond quickly. Customers arrive randomly…
Since they were authorized by the U.S. Security and Exchange Commission in 1998, electronic exchanges have boomed, and by 2010 high frequency trading accounted for over 70% of equity trades in the US. Such markets are thought to increase…
We study an optimal execution strategy for purchasing a large block of shares over a fixed time horizon. The execution problem is subject to a general price impact that gradually dissipates due to market resilience. We allow for general…
This paper studies optimal market making for large-tick assets in the presence of latency. We consider a random walk model for the asset price, and formulate the market maker's optimization problem using Markov Decision Processes (MDP). We…
We study a problem of optimal investment/consumption over an infinite horizon in a market consisting of two possibly correlated assets: one liquid and one illiquid. The liquid asset is observed and can be traded continuously, while the…
We introduce and analyze a natural algorithm for multi-venue exploration from censored data, which is motivated by the Dark Pool Problem of modern quantitative finance. We prove that our algorithm converges in polynomial time to a…
We propose a framework for studying optimal market making policies in a limit order book (LOB). The bid-ask spread of the LOB is modelled by a Markov chain with finite values, multiple of the tick size, and subordinated by the Poisson…
This paper studies an open question in the warehouse problem where a merchant trading a commodity tries to find an optimal inventory-trading policy to decide on purchase and sale quantities during a fixed time horizon in order to maximize…
We study the optimal execution of market and limit orders with permanent and temporary price impacts as well as uncertainty in the filling of limit orders. Our continuous-time model incorporates a trade speed limiter and a trader director…
We provide an explicit characterization of the optimal market making strategy in a discrete-time Limit Order Book (LOB). In our model, the number of filled orders during each period depends linearly on the distance between the fundamental…
Market makers continuously set bid and ask quotes for the stocks they have under consideration. Hence they face a complex optimization problem in which their return, based on the bid-ask spread they quote and the frequency at which they…
We deal with the optimal execution problem when the broker's goal is to reach a performance barrier avoiding a downside barrier. The performance is provided by the wealth accumulated by trading in the market, the shares detained by the…