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Size matters for OTC market makers: general results and...

Author
Philippe Bergault, Olivier Guéant
Date Updated
2022/09/21
Category
q-fin.TR
Date Published
2019/07/02
Date Retrieved
2022/09/22
Description
In most OTC markets, a small number of market makers provide liquidity to other market participants. More precisely, for a list of assets, they set prices at which they agree to buy and sell. Market makers face therefore an interesting optimization problem: they need to choose bid and ask prices for making money while mitigating the risk associated with holding inventory in a volatile market. Many market making models have been proposed in the academic literature, most of them dealing with single-asset market making whereas market makers are usually in charge of a long list of assets. The rare models tackling multi-asset market making suffer however from the curse of dimensionality when it comes to the numerical approximation of the optimal quotes. The goal of this paper is to propose a dimensionality reduction technique to address multi-asset market making by using a factor model. Moreover, we generalize existing market making models by the addition of an important feature: the existence of different transaction sizes and the possibility for the market makers in OTC markets to answer different prices to requests with different sizes.
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Posts
8
Readers
10
Score
2.25
Tweeters
4
URL
https://arxiv.org/abs/1907.01225
Property
TOP