TY - JOUR
T1 - Optimal Strategy for Limit Order Book Submissions in High Frequency Trading
JO - East Asian Journal on Applied Mathematics
VL - 2
SP - 222
EP - 234
PY - 2018
DA - 2018/02
SN - 6
DO - http://doi.org/10.4208/eajam.230515.160316a
UR - https://global-sci.org/intro/article_detail/eajam/10792.html
KW - High-frequency trading, Limit Order Book (LOB), Diffusion Approximation, Hamilton-Jacobi-Bellman (HJB) Equation.
AB - <p style="text-align: justify;">An optimal selection problem for bid and ask quotes subject to a stock inventory
constraint is investigated, formulated as a constrained utility maximisation problem
over a finite time horizon. The arrivals of buy and sell orders are governed by Poisson
processes, and a diffusion approximation is employed on assuming the Poisson arrivals
intensity is sufficiently large. Using the dynamic programming principle, we adopt an efficient
numerical procedure to solve this constrained utility maximisation problem based
on a successive approximation algorithm, and conduct numerical experiments to analyse
the impacts of the inventory constraint on a dealer’s terminal profit and stock inventory
level. It is found that the stock inventory constraint significantly affects the terminal
stock inventory level.</p>