Economics at your fingertips  

Electronic Market Making and Latency

Xuefeng Gao and Yunhan Wang

Papers from

Abstract: This paper studies the profitability of market making strategies and the impact of latency on electronic market makers' profits for large-tick assets. By analyzing the optimal market making problem using Markov Decision Processes, we provide simple conditions to determine when a market maker earns zero or positive profits and discuss economic implications. We also prove that higher latency leads to reduced profits for market makers, and conduct numerical experiments to illustrate the effect of latency and relative latency on the market maker's expected profit. Finally, our work highlights the importance of value of orders in optimal market making.

New Economics Papers: this item is included in nep-mst
Date: 2018-06
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link) Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Papers from
Bibliographic data for series maintained by arXiv administrators ().

Page updated 2018-07-24
Handle: RePEc:arx:papers:1806.05849