Talk by Olivier Guéant, Professor Université Paris 1 Panthéon Sorbonne
Title: From Theoretical Results to Real-World Applications in Bonds, FX, Commodities and Cryptocurrencies: An Overview on Market Making Models
Abstract: Since the foundational work of Ho and Stoll, later refined by Avellaneda and Stoikov, algorithmic market-making models have advanced to include more realistic features, such as trade sizes, complex price dynamics, tiering, the internalization vs. externalization tradeoff, and market impact. These models have been applied to many OTC markets ranging from illiquid corporate bonds to highly liquid foreign exchange markets and cryptocurrencies (price-aware AMMs). This talk will review key developments in the field, highlighting both theoretical advancements and practical applications. It will also introduce a recent extension of these models to address challenges faced by precious metals dealers, who act as market makers in spot markets while hedging with futures. The mathematical framework leverages tools from stochastic optimal control, optimization, variational calculus, and stochastic filtering.