6:00 PM Seminar Begins
7:30 PM Reception
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New York, NY 10023
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How can a market making algorithm use information in the order book when computing bid and ask quotes? Market making models, such as Avellaneda and Stoikov (2008), compute bids and asks around the midprice, to minimize inventory risk. In practice, the midprice may be a poor estimate of the fair value, particularly for cryptocurrencies, where the tick size is relatively small. Using Bitcoin data, I backtest market-making strategies around the midprice, as well as other microstructure adjusted prices. In particular, a new definition of fair price, which we call the Volume Adjusted Mid Price (VAMP) consistently outperforms the mid price, from the perspective of a market maker.
Sasha Stoikov has 15 years of experience at the interface of academia, startups and the finance industry. He is a Senior Research Associate at Cornell Financial Engineering Manhattan (CFEM) and was a VP of High Frequency trading at Cantor Fitzgerald. He has also launched a music tech startup called Piki.