Intraday Market Making with Overnight Inventory Costs
نویسندگان
چکیده
منابع مشابه
Optimal market making strategies under inventory constraints
We study the problem of a market-maker acting as a liquidity provider by continuously setting bid and ask prices for an illiquid asset. We assume that the market maker has a contractual obligation to permanently quote bid and ask prices for the security and therefore to satisfy any sell or buy order from the asset’s investors. On the opposite side of the trades, there are investors who act as l...
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Market makers in over-the-counter markets often make offsetting trades and have significant market power. We develop a market making model that captures this market feature as well as other important characteristics such as information asymmetry and inventory risk. In contrast to the existing literature, a market maker in our model can optimally shift some trade with the informed to other discr...
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Existing microstructure literature cannot explain the empirical evidence that bid-ask spreads can decrease with information asymmetry and ignores either information asymmetry or inventory risks. We develop a market making model that highlights the asset pricing impact of market makers’ capability of making offsetting trades in markets where both information asymmetry and inventory risk are sign...
متن کاملOptimal Inventory Control in Market-Making with Risk Aversion
Market-makers have the obligation to trade fixed amounts of assets at quoted bid or ask prices, and their inventories are exposed to the potential loss when the market price moves in an undesirable direction. One approach to reduce the risk associated with price uncertainty is to adjust the inventory at the price of losing potential spread gain. For a single-asset model, we show that a threshol...
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We propose a semi-parametric coupled component GARCH model for intraday and overnight volatility that allows the two periods to have different properties. To capture the very heavy tails of overnight returns, we adopt a dynamic conditional score model with t innovations. We propose a several step estimation procedure that captures the nonparametric slowly moving components by kernel estimation ...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2017
ISSN: 1556-5068
DOI: 10.2139/ssrn.2844881