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.
","abstract_html":"<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>","abstract_has_math":false,"creators":["Law, Chi Wai"],"institution":null,"degree_name":"Doctor of Philosophy (PhD)","degree_level":"Dissertation","degree_discipline":"Statistics","degree_department":null,"school":null,"contributors":["Frederi G. Viens","Fabrice Baudoin","Hao Zhang","Jose E. Figueroa-Lopez"],"advisors":[],"committee_chairs":[],"committee_members":[],"year":2015,"date_issued":"2015-04-01T07:00:00Z","date_published":"2015-04-01T07:00:00Z","updated_at":"2026-07-24T03:53:28Z","subjects":["Finance and Financial Management","Mathematics","Statistics and Probability"],"languages":[],"rights":[],"rights_urls":[],"identifier_entries":[]},"links":{"outbound_url":"https://docs.lib.purdue.edu/open_access_dissertations/496","outbound_label":"Repository record","outbound_source":"dc:identifier"},"metadata_groups":[{"id":"people","label":"People","entries":[{"key":"dc:contributor","label":"Contributor","values":["Frederi G. Viens","Fabrice Baudoin","Hao Zhang","Jose E. Figueroa-Lopez"]},{"key":"dc:creator","label":"Author","values":["Law, Chi Wai"]}]},{"id":"academic_context","label":"Academic Context","entries":[{"key":"thesis:degree_discipline","label":"Discipline","values":["Statistics"]},{"key":"thesis:degree_level","label":"Degree Level","values":["Dissertation"]},{"key":"thesis:degree_name","label":"Degree Name","values":["Doctor of Philosophy (PhD)"]}]},{"id":"subjects_keywords","label":"Subjects and Keywords","entries":[{"key":"dc:subject","label":"Dc Subject","values":["Finance and Financial Management","Mathematics","Statistics and Probability"]}]},{"id":"identifiers","label":"Identifiers","entries":[{"key":"dc:identifier","label":"Identifier","values":["https://docs.lib.purdue.edu/open_access_dissertations/496"]}]},{"id":"additional","label":"Additional Metadata","entries":[{"key":"dc:description.abstract","label":"Abstract","values":["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.
"]},{"key":"dc:title","label":"Title","values":["A pure-jump market-making model for high-frequency trading"]}]}],"canonical_facts":{"dc:contributor":["Frederi G. Viens","Fabrice Baudoin","Hao Zhang","Jose E. Figueroa-Lopez"],"dc:creator":["Law, Chi Wai"],"dc:description.abstract":["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.
"],"dc:identifier":["https://docs.lib.purdue.edu/open_access_dissertations/496"],"dc:subject":["Finance and Financial Management","Mathematics","Statistics and Probability"],"dc:title":["A pure-jump market-making model for high-frequency trading"],"thesis:degree_discipline":["Statistics"],"thesis:degree_level":["Dissertation"],"thesis:degree_name":["Doctor of Philosophy (PhD)"]},"updated_at":"2026-07-24T03:53:28Z"}