Optimal Liquidation and Market Making: Recent Contributions

Abstract

Two related papers will be presented that rely on the same mathematical finding. The first one "Dealing with the inventory risk" solves the Avellaneda-Stoikov problem. It corresponds to the case of a market maker who has to continuously set a bid and a ask quote and we derive the optimal quotes with closed-form approximations based on spectral ideas. The second one deals with the classical subject of optimal liquidation and is one of the first attempts to solve the problem with limit orders instead of liquidity-consuming market orders. We will also consider very recent works on the generalization to any intensity function.