On Bid and Ask Side-Specific Tick Sizes

DOI10.1137/21M146065XMaRDI QIDQ6091093zbMATH OpenOpenAlexFDO

Authors Bastien Baldacci, Philippe Bergault, Mathieu Rosenbaum

Publication date 23 November 2023

Published in SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2005.14126

zbMATH Keywords

financial regulationhigh frequency tradingmarket makingmodel with uncertainty zonesstochastic controltick sizeviscosity solutions

Mathematics Subject Classification ID

Dynamic programming in optimal control and differential games (49L20) Financial markets (91G15)

Abstract: The tick size, which is the smallest increment between two consecutive prices for a given asset, is a key parameter of market microstructure. In particular, the behavior of high frequency market makers is highly related to its value. We take the point of view of an exchange and investigate the relevance of having different tick sizes on the bid and ask sides of the order book. Using an approach based on the model with uncertainty zones, we show that when side-specific tick sizes are suitably chosen, it enables the exchange to improve the quality of liquidity provision.

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Cites work

• Algorithmic and high-frequency trading
• Buy Low, Sell High: A High Frequency Trading Perspective
• Dealing with the inventory risk: a solution to the market making problem
• High-frequency trading in a limit order book
• scientific article; zbMATH DE number 1817636 (Why is no real title available?)
• Optimal make-take fees in a multi market-maker environment
• Optimal make–take fees for market making regulation
• Second-order elliptic integro-differential equations: viscosity solutions' theory revisited
• The financial mathematics of market liquidity. From optimal execution to market making
• User’s guide to viscosity solutions of second order partial differential equations
• Volatility and covariation estimation when microstructure noise and trading times are endogenous

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