Option market making with hedging-induced market impact¶
Bibliographic record. Follow the original-source link for the publication.
| Field | Value |
|---|---|
| Primary domain | Microstructure |
| Other domains | Execution Costs |
| Methods | — |
| Facets | — |
| Authors | Paulin Aubert, Etienne Chevalier, Vathana Ly Vath |
| Published | 2026-04-29 |
| Source | arXiv Quantitative Finance History |
| Identifiers | arxiv:2511.02518 |
| URL | Open original source |
Editorial synthesis¶
Why it matters¶
The paper models option market making with hedging-induced underlying price impact, making the interaction of quoting, hedging and inventory explicit, which is critical for feedback control and liquidity risk modeling. (abstract:S1, abstract:S2, abstract:S3, abstract:S4, abstract:S6)
Main author claims¶
- The authors claim option market-making is modeled with market-maker hedging impacting the underlying asset, while option order flow is modeled by Cox processes with state- and quote-dependent intensities. (
abstract:S1,abstract:S2) - They analyze feedback-induced manipulation/arbitrage possibilities, formulate a mixed control problem with continuous quoting and impulse hedging, and implement policy-optimization numerics to study interactions among liquidity, inventory risk, and impact. (
abstract:S4,abstract:S5,abstract:S6)
Data, method, or discussion scope¶
Scope includes the demand-process specification, coupled dynamics, manipulation/arbitrage discussion, and a policy-optimization numerical method, but omits parameter estimates, stability conditions, and full comparative performance tables. (abstract:S1, abstract:S2, abstract:S3, abstract:S4, abstract:S5, abstract:S6)
Main limitations¶
The abstract emphasizes theoretical design and well-posedness but lacks market calibration data and control-constraint details needed to determine usable risk parameters. (abstract:S5, abstract:S6)