Short-Term Market Changes and Market Making with Inventory

12 Pages Posted: 25 Jul 2020

See all articles by Jin Gi Kim

Jin Gi Kim

Pohang University of Science and Technology (POSTECH) - Department of Industrial and Management Engineering

Sam Beatson

affiliation not provided to SSRN

Bong-Gyu Jang

Pohang University of Science and Technology (POSTECH)

Ho-Seok Lee

Kwangwoon University - Department of Mathematics

Seyoung Park

Nottingham University Business School

Date Written: July 1, 2020

Abstract

We study optimal trading strategy of a market maker with stock inventory in the presence of short-term market changes, especially changes in trading intensity of market participants and stock volatility. We employ Poisson jump processes in modelling such market condition changes. We provide closed form optimal bidding and asking strategies of the market maker, and analyze the market maker’s inventory changes accordingly.

Keywords: Market Maker, Regime Switching, Inventory Management, Intraday Trade, Market Micro-Structure

JEL Classification: C61, D40, G11

Suggested Citation

Kim, Jin Gi and Beatson, Sam and Jang, Bong-Gyu and Lee, Ho-Seok and Park, Seyoung, Short-Term Market Changes and Market Making with Inventory (July 1, 2020). Available at SSRN: https://ssrn.com/abstract=3639715 or http://dx.doi.org/10.2139/ssrn.3639715

Jin Gi Kim

Pohang University of Science and Technology (POSTECH) - Department of Industrial and Management Engineering

77, Cheongam-ro
Nam-gu
Pohang-si, Gyengsangbuk-do 37673
Korea, Republic of (South Korea)

Sam Beatson

affiliation not provided to SSRN

Bong-Gyu Jang

Pohang University of Science and Technology (POSTECH) ( email )

77 Cheongam-ro
Pohang
Korea, Republic of (South Korea)

Ho-Seok Lee (Contact Author)

Kwangwoon University - Department of Mathematics ( email )

20 Kwangwoon-ro, Nowon-gu
Seoul, 01897
Korea, Republic of (South Korea)

Seyoung Park

Nottingham University Business School ( email )

Nottingham University Business School
Jubilee Campus
Nottingham
United Kingdom
+44-7927-494518 (Phone)

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