ABSTRACT

In the previous chapters, we mainly dealt with optimal execution: the optimal execution of a large order to liquidate a portfolio, the optimal execution of a hedging strategy, and the optimal execution strategy in the case of a buy-back contract. Therefore, our focus was mainly on liquidity taking issues – even though we also considered the use of liquidity-providing (limit) orders to buy or sell shares, for instance when we dealt with tactics in Chapter 7. In this chapter on market making, we focus instead on liquidity provision.