Optimal Market Making Size under State-Dependent Hawkes Processes

This study constructs a parameterized execution model incorporating quote setting and state-dependent order flow for market making scenarios, expressing trading volume as the product of average order size, an exponential demand function, and a Prony series multiplier related to quote depth and the number of market orders based on a state-dependent Hawkes model. Empirical backtesting using order book data shows that this calibrated model achieves higher terminal utility than a baseline model while satisfying preset inventory constraints, and can distinguish the contributions of trading revenue and inventory control.