Avellaneda-Stoikov Model

On Bellman equation in the limit order optimization problem for high-frequency trading ArXiv ID: 2510.15988 “View on arXiv” Authors: M. I. Balakaeva, A. Yu. Veretennikov Abstract An approximation method for construction of optimal strategies in the bid & ask limit order book in the high-frequency trading (HFT) is studied. The basis is the article by M. Avellaneda & S. Stoikov 2008, in which certain seemingly serious gaps have been found; in the present paper they are carefully corrected. However, a bit surprisingly, our corrections do not change the main answer in the cited paper, so that, in fact, the gaps turn out to be unimportant. An explanation of this effect is offered. ...

Looking into informal currency markets as Limit Order Books: impact of market makers ArXiv ID: 2503.03858 “View on arXiv” Authors: Unknown Abstract This study pioneers the application of the market microstructure framework to an informal financial market. By scraping data from websites and social media about the Cuban informal currency market, we model the dynamics of bid/ask intentions using a Limit Order Book (LOB). This approach enables us to study key characteristics such as liquidity, stability and volume profiles. We continue exploiting the Avellaneda-Stoikov model to explore the impact of introducing a Market Maker (MM) into this informal setting, assessing its influence on the market structure and the bid/ask dynamics. We show that the Market Maker improves the quality of the market. Beyond their academic significance, we believe that our findings are relevant for policymakers seeking to intervene informal markets with limited resources. ...