High-frequency trading in a limit order book

Marco Avellaneda, Sasha Stoikov · 2008 · Quantitative Finance

IntermediateHFTTheory

Quote around a reservation price that skews with inventory; the spread depends on risk aversion and order-arrival intensity. The starting point for model-based market making.

Read the paper ↗

At a glance

Level: Intermediate: Comfortable with statistics, regressions and basic probability models
Horizon: HFT
Data needed: L1 quotes, Trades Set what data you have
Themes: Market making
Assets: Equities
Market: Global

Your notes

Report a problem with this entry

Step 3 of 7 in

Market making, from dealers to HFT

← Optimal dealer pricing under transactions and return uncertaintyDealing with the inventory risk: a solution to the market making problem →

Cite

@article{avellaneda2008high,
  author = {Avellaneda, Marco and Stoikov, Sasha},
  title = {{High-frequency trading in a limit order book}},
  journal = {Quantitative Finance},
  year = {2008},
  doi = {10.1080/14697680701381228}
}

Avellaneda, M., & Stoikov, S. (2008). High-frequency trading in a limit order book. Quantitative Finance. https://doi.org/10.1080/14697680701381228