I am looking for academic articles which model the p&L of market makers. I have read the Ho-Stoll (1984) article. Is there any recent article on this subject?
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2$\begingroup$ Look for answers of @lehalle here. There are several studies mentioned. $\endgroup$– IlyaSep 6, 2013 at 8:47
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In fact you have three papers available to go further:
- The Avellaneda-Stoikov one, with proper model and an approximate solution
- The Bayraktar-Ludkovski one, with a solution for the linear utility function
- The L-Guéant-Fernandez one, with a full solution for a generic utility function
I prefer the last one ;{)}
To read them, you need to know Stochastic Differential Equations (with jumps) and Stochastic Control (especially Hamilton-Jacobi-Bellman expressions of Stochastic Control with jumps).
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$\begingroup$ Would it possible for you to enlist the topics in quantitative finance that I need to be familiar with to be able to comprehend these papers ? Just to give you my background, I have a bachelor's in mechanical engineering and masters in data science and statistics. I am somewhat familiar with quantitative finance and algorithmic trading but I am looking to delve deeper into it. Thanks $\endgroup$ May 5, 2022 at 21:23
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1$\begingroup$ The proper name of the author of the second referenced paper is Ludkovski $\endgroup$ Aug 7 at 2:19
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$\begingroup$ @DmitryMottl thank you: corrected (and sorry for Mike if he reads this, a problem of lowercase...) $\endgroup$– lehalleAug 9 at 6:59