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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
  • Hamilton–Jacobi–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

Posted February 06, 2015 in: by ammin

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