Optimal market making with persistent order flow (2003.05958v2)

Abstract: \noindent We address the issue of market making on electronic markets when taking into account the clustering and long memory properties of market order flows. We consider a market model with one market maker and order flows driven by general Hawkes processes. We formulate the market maker's objective as a stochastic control problem. We characterize an optimal control by proving existence and uniqueness of a viscosity solution to the associated Hamilton-Jacobi-Bellman equation. Finally we propose a fully consistent numerical method allowing to implement this optimal strategy in practice.