Dealing with the inventory risk: a solution to the market making problem

Olivier Guéant, Charles-Albert Lehalle, Joaquin Fernandez-Tapia · 2013 · Mathematics and Financial Economics

AdvancedHFTTheory

Solves Avellaneda-Stoikov with inventory limits and gives closed-form approximations. The version practitioners usually implement.

Read the paper ↗

At a glance

Level: Advanced: Stochastic control, point processes, heavy econometrics or deep learning
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 4 of 7 in

Market making, from dealers to HFT

← High-frequency trading in a limit order bookBuy Low, Sell High: A High Frequency Trading Perspective →

Cite

@article{gueant2013dealing,
  author = {Guéant, Olivier and Lehalle, Charles-Albert and Fernandez-Tapia, Joaquin},
  title = {{Dealing with the inventory risk: a solution to the market making problem}},
  journal = {Mathematics and Financial Economics},
  year = {2013},
  doi = {10.1007/s11579-012-0087-0}
}

Guéant, O., Lehalle, C.-A., & Fernandez-Tapia, J. (2013). Dealing with the inventory risk: a solution to the market making problem. Mathematics and Financial Economics. https://doi.org/10.1007/s11579-012-0087-0