Inventory Risk Management Of Market Makers Based On Quotation Mechanism For Price Difference Process

With the mature development of the global financial market,high frequency trading has developed rapidly.Market maker strategy is a common trading strategy under high frequency trading,and market makers are also important participants in high frequency trading.They provide investors with the buying and selling prices of securities to narrow the bid-ask spread in the market and promote buying and selling.The quotation is matched to achieve the realization of the transaction.In actual transactions,market-making strategies usually face inventory risks caused by fluctuations in inventory prices and trading volumes,and transaction risks such as losses caused by incomplete orders.Aiming at the inventory risk and transaction risk in securities market transactions,this article quotes Guilbaud and Pham's high frequency market maker trading model strategy.While market makers expect to have more options for buying and selling prices in actual transactions,they can go beyond the limit order buying and selling price of the original model.Therefore,this article uses the quotation method of symmetric quotation around the reserved price to update the quotation mechanism of the market maker model,and solves the market maker strategy after improving the quotation mechanism.After updating the quotation mechanism of the market maker strategy,the empirical analysis of the strategy parameter changes,order transactions,inventory changes and strategy returns was carried out through the high-frequency data of the futures market.At the same time,the GP market maker strategies of different quotation mechanisms are compared.The results show that:(1)The GP market maker strategy based on the reserve price quotation mechanism has a small inventory change during the transaction process,but the lower transaction volume does not weaken the profitability of the strategy.During the trading process,the profit of each transaction order has increased significantly,and the profit effect will be maintained after the transaction is over.(2)The GP market maker strategy of buying and selling quotes around the reserve price has less volatility in inventory changes,and the inventory volume is always maintained at a low level.The GP market maker strategy based on the reserve price quotation mechanism reduces the inventory risk and transaction risk faced by market makers in transactions,and is more conducive for market makers to manage and control inventory changes reasonably.