Abstract

Along the lines of the paper \cite{zoe}, we find a general form of the optimal market making strategy for a high-frequency market maker (HFM) in a discrete-time Limit Order Book (LOB) model. Unlike \cite{zoe}, the optimal market making strategy is adaptive depending on the arrival of Market Order (MO) in the previous time intervals. We provide a method to make each placement of Limit Orders (LO) dependent on previous information in the same trading day and prove the admissibility of the optimal market making strategy under some general assumptions. Empirical study shows the adaptive optimal strategies outperform the non-adaptive strategy and those which place LOs at fixed distance from the midprice.

Committee Chair

Jose E. Figueroa-Lopez

Committee Members

Jimin Ding, Mladen Victor Wickerhauser

Degree

Master of Arts (AM/MA)

Author's Department

Statistics

Author's School

Graduate School of Arts and Sciences

Document Type

Thesis

Date of Award

Spring 5-2021

Language

English (en)

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