Optimal Adaptive Market Making for Perpetual Futures Markets
Summary
This paper presents a theoretical framework for optimal market making in zero-fee perpetual futures markets, modeling the problem as a stochastic optimal control. It provides a PnL decomposition, Hamilton-Jacobi-Bellman equation, and theorems for high-APY regimes, extending existing market-making paradigms for modern decentralized exchanges.
Why it matters
This framework provides quantitative finance professionals and algorithmic traders with advanced tools and a deeper theoretical understanding to optimize market-making strategies, potentially leading to higher yields and more robust risk management in complex perpetual futures markets.
How to implement this in your domain
- 1Study: Analyze the PnL decomposition and High-APY Regime Theorems to refine existing market-making models.
- 2Model: Incorporate the stochastic optimal control problem and Hamilton-Jacobi-Bellman equation into quantitative trading algorithms.
- 3Optimize: Adjust bid-ask spread and inventory hedging strategies based on the framework's insights into funding rate dynamics and cross-exchange policies.
- 4Simulate: Use the framework's principles to simulate and backtest new market-making strategies in perpetual futures.
Who benefits
Key takeaways
- A new theoretical framework optimizes market making in zero-fee perpetual futures markets.
- It provides a detailed PnL decomposition for various revenue and cost factors.
- High-APY regimes are characterized by a "Master APY Formula" and five parameters.
- The framework offers optimal cross-exchange hedging policies and extends existing market-making theories.
Original post by Minmin Zeng, Yi Liu
"arXiv:2607.11888v1 Announce Type: new Abstract: We develop a rigorous theoretical framework for optimal market making in perpetual futures markets with zero maker fees. We model the market maker's problem as a stochastic optimal control problem on a filtered probability space, wh…"
View on XOriginally posted by Minmin Zeng, Yi Liu on X · view source
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