A mean-field game of market-making against strategic traders

Bastien Baldacci, Philippe Bergault and Dylan Possama\"i

Papers from arXiv.org

Abstract: We design a market-making model \`a la Avellaneda-Stoikov in which the market-takers act strategically, in the sense that they design their trading strategy based on an exogenous trading signal. The market-maker chooses her quotes based on the average market-takers' behaviour, modelled through a mean-field interaction. We derive, up to the resolution of a coupled HJB--Fokker--Planck system, the optimal controls of the market-maker and the representative market-taker. This approach is flexible enough to incorporate different behaviours for the market-takers and takes into account the impact of their strategies on the price process.

Date: 2022-03
New Economics Papers: this item is included in nep-gth and nep-mst
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