Dealing with the Inventory Risk
Guéant, Olivier; Lehalle, Charles-Albert; Tapia, Joaquin Fernandez (2011), Dealing with the Inventory Risk. https://basepub.dauphine.fr/handle/123456789/7390
TypeDocument de travail / Working paper
Series titleCahiers de la Chaire Finance et Développement Durable
MetadataShow full item record
Abstract (EN)Market makers have to continuously set bid and ask quotes for the stocks they have under consideration. Hence they face a complex optimization problem in which their return, based on the bid-ask spread they quote and the frequency they indeed provide liquidity, is challenged by the price risk they bear due to their inventory. In this paper, we provide optimal bid and ask quotes and closed-form approximations are derived using spectral arguments.
Subjects / KeywordsTrading process; Stocks; Risk; Inventory
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