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
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