Optimal Inventory Control in Market-Making with Risk Aversion
نویسندگان
چکیده
Market-makers have the obligation to trade fixed amounts of assets at quoted bid or ask prices, and their inventories are exposed to the potential loss when the market price moves in an undesirable direction. One approach to reduce the risk associated with price uncertainty is to adjust the inventory at the price of losing potential spread gain. For a single-asset model, we show that a threshold inventory control policy is optimal for mean-variance analysis and exponential utility criterion. The mean-variance analysis for a multiple-asset model suggests that there exists a simply connected no-trade region and that the optimal strategy can be obtained from the no-trade region.
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