Researchers release paper on optimal market making size under state-dependent Hawkes processes
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Jonathan Chávez Casillas and Li Gan published an academic paper on 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, representing trading volume as the product of average order size, an exponential demand function, and a Prony series multiplier related to quote depth and market order volume based on a state-dependent Hawkes model. Empirical backtesting based on order book data shows that the calibrated model achieves higher terminal utility than the benchmark model while satisfying preset inventory constraints, and can distinguish the contributions of trading gains and inventory control.
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- arXiv q-finOptimal 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.
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