Work detail

Quoting behaviour of a market-maker under different exchange fee structures

Author: Mgr. Rastislav Kiseľ
Year: 2018 - winter
Leaders: doc. PhDr. Jozef Baruník Ph.D.
Consultants:
Work type: Finance, Financial Markets and Banking
Masters
Language: English
Pages: 98
Awards and prizes:
Link: https://is.cuni.cz/webapps/zzp/detail/188231/
Abstract: During the last few years, market micro-structure research has been active in
analysing the dependence of market efficiency on different market characteristics.
Make-take fees are one of those topics as they might modify the incentives
for participating agents, e.g. broker-dealers or market-makers. In this
thesis, we propose a Hawkes process-based model that captures statistical
differences arising from different fee regimes and we estimate the differences
on limit order book data. We then use these estimates in an attempt to
measure the execution quality from the perspective of a market-maker. We
appropriate existing theoretical market frameworks, however, for the purpose
of hireling optimal market-making policies we apply a novel method of
deep reinforcement learning. Our results suggest, firstly, that maker-taker
exchanges provide better liquidity to the markets, and secondly, that deep
reinforcement learning methods may be successfully applied to the domain
of optimal market-making.

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