Statistical Models Commons^™

Adaptive Optimal Market Making Strategies With Inventory Liquidation Cost, Yi Zhang

Arts & Sciences Electronic Theses and Dissertations

Along the lines of the paper \cite{zoe}, we find a general form of the optimal market making strategy for a high-frequency market maker (HFM) in a discrete-time Limit Order Book (LOB) model. Unlike \cite{zoe}, the optimal market making strategy is adaptive depending on the arrival of Market Order (MO) in the previous time intervals. We provide a method to make each placement of Limit Orders (LO) dependent on previous information in the same trading day and prove the admissibility of the optimal market making strategy under some general assumptions. Empirical study shows the adaptive optimal strategies outperform the non-adaptive strategy …