Market making, from dealers to HFT
Liquidity and Market Structure
Liquidity is the price of immediacy: market makers are paid for bridging the gap between the arrivals of buyers and sellers.
Optimal dealer pricing under transactions and return uncertainty
The first inventory-based dealer model: quotes shift with inventory to control risk. Avellaneda-Stoikov's direct ancestor.
High-frequency trading in a limit order book
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.
Dealing with the inventory risk: a solution to the market making problem
Solves Avellaneda-Stoikov with inventory limits and gives closed-form approximations. The version practitioners usually implement.
Buy Low, Sell High: A High Frequency Trading Perspective
Market making with self-exciting order flow, adverse selection and short-term alpha. Shows how to skew quotes on signals.
A Model for Queue Position Valuation in a Limit Order Book
Puts a value on queue position. On large-tick instruments, being early in the queue is worth a meaningful fraction of the spread.
High frequency trading and the new market makers
Anatomy of one HFT market maker across Chi-X and Euronext: tiny per-trade margins, flat inventory, profit from the spread minus adverse selection.