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Inventory Management for High-Frequency Trading With Imperfect Competition
| Content Provider | Scilit |
|---|---|
| Author | Herrmann, Sebastian Muhle-Karbe, Johannes Shang, Dapeng Yang, Chen |
| Copyright Year | 2018 |
| Description | Journal: SSRN Electronic Journal We study Nash equilibria for inventory-averse high-frequency traders (HFTs), who trade to exploit information about future price changes. For discrete trading rounds, the HFTs' optimal trading strategies and their equilibrium price impact are described by a system of nonlinear equations; explicit solutions obtain around the continuous-time limit. Unlike in the risk-neutral case, the optimal inventories become mean-reverting and vanish as the number of trading rounds becomes large. In contrast, the HFTs' risk-adjusted profits and the equilibrium price impact converge to their risk-neutral counterparts. Compared to a social-planner solution for cooperative HFTs, Nash competition leads to excess trading, so that marginal transaction taxes in fact decrease market liquidity. |
| Related Links | http://arxiv.org/pdf/1808.05169 https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3232037 |
| ISSN | 10914358 |
| e-ISSN | 15565068 |
| DOI | 10.2139/ssrn.3232037 |
| Journal | SSRN Electronic Journal |
| Language | English |
| Publisher | Elsevier BV |
| Publisher Date | 2018-08-15 |
| Access Restriction | Open |
| Subject Keyword | Journal: SSRN Electronic Journal High-frequency Trading Information Asymmetry Inventory Management Imperfect Competition |
| Content Type | Text |
| Resource Type | Article |
| Subject | Public Health, Environmental and Occupational Health Psychiatry and Mental Health |
