Optimal Algorithmic Liquidity Trading Strategies for Large Competitive Markets

Student: Melnikov Ilya

Educational Programme: Mathematical Methods of Optimization and Stochastics (Master)

Year of Graduation: 2018

We extend the classical market microstructure model from Almgren/Chriss(1999) by adding liquidity traders who arrive randomly according to a homogeneous Poisson process. We omit the variance component used in the said study, but show that even on simplified functional, LTs show behaviour that cannot be considered risk-neutral. We solve the model under the assumption that all underlying RV distributions are contained in a public signal and derive the optimal trading trajectories for this setting.

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