Problem
Research questions and friction points this paper is trying to address.
Liquidity Provision
Rebate Design
Option Markets
Liquidity Provision and Rebate Design in Option Markets
🤖 AI Summary
本文通过构建市场做市与回扣设计的嵌套优化模型，提出一种三步回扣设计方案以激励做市商提高期权市场的流动性。
📝 Abstract
We provide a model for the nested optimisation problem of market making and rebate design problems in option markets and find optimal strategies. A single market maker trades multiple European call options in a local-stochastic volatility option market with both make and take strategies, modeled, respectively, as continuous and impulse controls. Her objective is to maximize, over all admissible make-take strategies, net profit of option portfolio value and cumulative rebate revenue, subject to a penalty on residual portfolio delta and vega. In addition, we demonstrate how an exchange can incentivize a market maker to improve market liquidity by setting suitable fee rebates, thereby resolving its own liquidity attraction problem. To this end, we propose a three-step rebate design scheme with flexibility to accommodate specific liquidity targets imposed by an exchange. Numerical results are provided to validate the effectiveness of the proposed scheme.
Innovation
Methods, ideas, or system contributions that make the work stand out.
nested optimisation problem
rebate design scheme
liquidity provision
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