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Optimal market making with persistent order flow

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  • Paul Jusselin

Abstract

\noindent We address the issue of market making on electronic markets when taking into account the clustering and long memory properties of market order flows. We consider a market model with one market maker and order flows driven by general Hawkes processes. We formulate the market maker's objective as a stochastic control problem. We characterize an optimal control by proving existence and uniqueness of a viscosity solution to the associated Hamilton-Jacobi-Bellman equation. Finally we propose a fully consistent numerical method allowing to implement this optimal strategy in practice.

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  • Paul Jusselin, 2020. "Optimal market making with persistent order flow," Papers 2003.05958, arXiv.org, revised Oct 2020.
    • Handle: RePEc:arx:papers:2003.05958
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    References listed on IDEAS

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    Cited by:

    1. Olivier Guéant, 2022. "Computational methods for market making algorithms," Post-Print hal-04590381, HAL.

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