High-frequency market-making with inventory constraints and directional bets

@inproceedings{Fodra2012HighfrequencyMW,
  title={High-frequency market-making with inventory constraints and directional bets},
  author={Pietro Fodra and Mauricio Labadie},
  year={2012}
}
In this paper we extend the market-making models with inventory constraints of Avellaneda and Stoikov (High-frequency trading in a limit-order book, Quantitative Finance Vol.8 No.3 2008) and Guéant, Lehalle and Fernandez-Tapia (Dealing with inventory risk, Preprint 2011) to the case of a rather general class of mid-price processes, under either exponential or linear PnL utility functions, and we add an inventory-risk-aversion parameter that penalises the marker-maker if she finishes her day… CONTINUE READING
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