A pure-jump market-making model for high-frequency trading

<p>We propose a new market-making model which incorporates a number of realistic features relevant for high-frequency trading. In particular, we model the dependency structure of prices and order arrivals with novel self- and cross-exciting point processes. Furthermore, instead of assuming the bid and ask prices can be adjusted continuously by the market maker, we formulate the market maker's decisions as an optimal switching problem. Moreover, the risk of overtrading has been taken into consideration by allowing each order to have different size, and the market maker can make use of market orders, which are treated as impulse control, to get rid of excessive inventory. Because of the stochastic intensities of the cross-exciting point processes, the optimality condition cannot be formulated using classical Hamilton-Jacobi-Bellman quasi-variational inequality (HJBQVI), so we extend the framework of constrained forward backward stochastic differential equation (CFBSDE) to solve our optimal control problem.</p>

Name thesis:degree_name

Doctor of Philosophy (PhD)

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Statistics

Year

2015

Author dc:creator

• Law, Chi Wai

Contributors dc:contributor

• Frederi G. Viens
• Fabrice Baudoin
• Hao Zhang
• Jose E. Figueroa-Lopez

• Finance and Financial Management
• Mathematics
• Statistics and Probability

Repository record dc:identifier

https://docs.lib.purdue.edu/open_access_dissertations/496

OAI identifier oai:identifier

oai:docs.lib.purdue.edu:open_access_dissertations-1401