This paper studies the profitability of market making strategies and the impact of latencyon electronic market makers' profits for large-tick assets. By analyzing the optimal market making  problem using Markov Decision Processes , we provide simple conditions to determine when a market maker earns zero or positive profits and discuss economic implications. We also prove that higher latency leads to reduced profits for market makers, and conduct numerical experiments to illustrate the effect of latency and relative latency on the market maker's expected profit. Finally, our work highlights the importance of value of orders in optimal market making .
This paper studies optimal market making for large--tick assets in the presence of latency. We formulate the problem using Markov Decision Processes . We provide explicit characterizations of the order value and the structure of the value functions. We use such characterizations to study when a market maker can earn a positive net profit and investigate the effect of latency . Numerical experiments are conducted to illustrate our results .
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the profitability of market making strategies and the impact of latencyon electronic market makers' profits for large-tick assets. By analyzing the
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for large--tick assets in the presence of latency. We formulate the
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, we provide simple conditions to determine
. We provide explicit characterizations of the order value and the structure of the value functions. We use such characterizations to study
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earns zero or positive profits and discuss economic implications. We also prove that higher latency leads to reduced profits for market makers, and conduct numerical experiments to illustrate
can earn a positive net profit and investigate
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and relative latency on the market maker's expected profit. Finally, our work highlights the importance of value of orders in optimal market making
. Numerical experiments are conducted to illustrate our results