I'm reading Avellaneda & Stoikov (2006) model for market making. On section 3.1, one can read

we are able to simplify the problem with the ansatz

$u(s,x,q,t)=-\exp(-\gamma x)\exp (-\gamma\theta(s,q,t))$

Direct substitution yields the following equation for $\theta$:

enter image description here

How the reservation prices $r^b$ and $r^a$ have been introduced in the equation?
Thank you



Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.