Closed-form Approximations in Multi-asset Market Making
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Abstract: A large proportion of market making models derive from the seminal model of Avellaneda and Stoikov. The numerical approximation of the value function and the optimal quotes in these models remains a challenge when the number of assets is large. In this article, we propose closed-form approximations for the value functions of many multi-asset extensions of the Avellaneda-Stoikov model. These approximations or proxies can be used (i) as heuristic evaluation functions, (ii) as initial value functions in reinforcement learning algorithms, and/or (iii) directly to design quoting strategies through a greedy approach. Regarding the latter, our results lead to new and easily interpretable closed-form approximations for the optimal quotes, both in the finite-horizon case and in the asymptotic (ergodic) regime.
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Cited in
(8)- Optimal market making
- How to build a cross-impact model from first principles: theoretical requirements and empirical results
- Deep reinforcement learning for market making in corporate bonds: beating the curse of dimensionality
- Algorithmic market making in dealer markets with hedging and market impact
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