Optimal Order Placement under a State-Dependent Hawkes Process Limit Order Book model

Jonathan Ch\'avez Casillas and Li Gan

Papers from arXiv.org

Abstract: We study optimal quote placement for a market maker facing order flow modeled by a state-dependent Hawkes process. A block-based linear demand specification links market-order counts to execution volumes, providing the demand moments required by a continuous time discrete state dynamic programming formulation. Under a quadratic terminal inventory penalty, we characterize inventory-dependent quotes and derive backward recursions for the coefficients of a quadratic value function. Numerical experiments using LOBSTER data examine quote distributions, inventory exposure, and terminal wealth. The implemented strategy yields higher aggregate terminal wealth than fixed-spread benchmarks at one and three ticks, but lower wealth than the two-tick benchmark. These results illustrate the framework's numerical implementation and distinguish terminal-wealth comparisons from evaluation under the inventory-penalized objective.

Date: 2026-10
New Economics Papers: this item is included in nep-mst
References: Add references at CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2610.37324 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: https://EconPapers.repec.org/RePEc:arx:papers:2610.37324

Access Statistics for this paper

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