# HFT – Market Making Strategies

– Introduction

- Definition of Market Maker
- Difference between Propriety Trading and Market Making
- Simple Market Making Shop (Business Model of Market Maker)
- Profit and Risk of Our Business

– Market Making Strategies

- Plain Market Making Strategies
- Non Offset, Full Offset, Direction and Timing
- Risk Analysis of Such Strategies: Adverse Selection
- Other Source of Market Making Cost

– Optimal Control Problem

- A Toy Example of Optimal Control
- Hamiltonâ€“Jacobiâ€“Bellman Equation
- Feynman Kac Theorem
- Solving HJB Equation

– Modelling Key Components

- Market Model
- Order Arriving Model
- Inventory Model
- Spread Model
- Utility Function
- Extend to Inventory Control Factor
- Extend with a Toy Directional Betting Factor
- Solve the Optimal Control Problem

– Numerical Solution (+coding)

- Assemble the Component Models into a whole system
- Simulation of Client Order Arrivals and Market Dynamics
- A test of applying same model on real market price

– Statistical Result and Analysis (+coding)

– What to Consider if we want to use the pure math idea into production

- May try to improve Price Model
- More sophisticated Directional Betting Factor
- More Factors to put into control, such as spread