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Title: Optimal strategy for limit order book submissions in high frequency trading
Authors: Song, N
Xie, Y
Ching, WK
Siu, TK
Yiu, CKF 
Keywords: Diffusion approximation
Hamilton-Jacobi-Bellman (HJB) Equation
High-frequency trading
Limit Order Book (LOB)
Issue Date: 2016
Publisher: Global Science Press
Source: East Asian journal on applied mathematics, 2016, v. 6, no. 2, p. 222-234 How to cite?
Journal: East Asian journal on applied mathematics 
Abstract: 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.
ISSN: 2079-7362
EISSN: 2079-7370
DOI: 10.4208/eajam.230515.160316a
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