We study the intraday behavior of bid-ask spreads for actively traded TAIEX option in Taiwan. A study of quality of price quotation offered by market makers is important because the market makers have the responsibilities to keep trading costs low and promote price discovery. Due to the observed wider price quotation from market makers, we find that market makers offer inefficient price quotations to fulfill their obligations under requirement of market making. Moreover, ways of quotation market makers choose, indeed, affect the price quotation of market makers. We also find foreign institutional investors (QFIIs) and market makers bear lower execution cost when they deal on TAIEX option market. Overall, despite the large trading volume and increasing liquidity in TAIEX option, our results suggest that market makers do not play an important role to the market liquidity of TAIEX option market as we thought previously. / We study the intraday behavior of bid-ask spreads for actively traded TAIEX option in Taiwan. A study of quality of price quotation offered by market makers is important because the market makers have the responsibilities to keep trading costs low and promote price discovery. Due to the observed wider price quotation from market makers, we find that market makers offer inefficient price quotations to fulfill their obligations under requirement of market making. Moreover, ways of quotation market makers choose, indeed, affect the price quotation of market makers. We also find foreign institutional investors (QFIIs) and market makers bear lower execution cost when they deal on TAIEX option market. Overall, despite the large trading volume and increasing liquidity in TAIEX option, our results suggest that market makers do not play an important role to the market liquidity of TAIEX option market as we thought previously.

Humboldt-Univ., Diss--Berlin, 2000. / Literaturverz. S. [273] - 287.

This diploma thesis deals with the market-making strategy's profitability analysis, tested on simulation of central order book. The theoretical part describes how the market maker quotes the price of supply and demand and mathematically proves under which circumstances this strategy is profitable. The practical part introduces a simulation of the central order book. The advantage of simulating the entire order book is that we have information about the number of market participants and quotes at any given time. It also introduces a fictitious market maker quoting the price of supply and demand at any given moment, the price being determined by the price of the previous time step. The order book is simulated in three different settings - random walk, mean-reversion and leptokurtic distribution, and it is shown that the expected profitability of the market-maker strategy is positive in all three cases.

Titel:  Flash-krascher – ett allvarligt problem på Stockholmsbörsen? Författare:  Madelene Söderström & Sebastian Roth Handledare: Bo Sjö Ämne:  Nationalekonomi – Kandidatuppsats inom finans Syfte:  Syftet med arbetet är att fördjupa förståelsen kring flash-krascher och vilken påverkan dessa har på handeln av värdepapper som sker på Stockholmsbörsen. Vi hoppas också att studien ger en klarare bild av hur flash-krascher påverkar olika aktörer med koppling till aktiehandeln i Sverige. Metod:  Uppsatsen är baserad på en kvalitativ studie utförd med intervjurespondenter med varierande koppling till Stockholmsbörsen och den svenska finansmarknaden. Teori:  Uppsatsen utgår främst från tidigare forskning inom ämnet bestående av studier baserade på händelser och data från USA. Annan ekonomisk teori som presenteras i studien är adverse selection. Empiri:  Uppsatsen är bestående av sju semistrukturerade intervjuer med aktörer på finansmarknaden. Intervjuerna jämförs med tidigare inträffade händelser i USA för att diskutera möjliga slutsatser om flash-krascher på Stockholmsbörsen. Slutsats:  Studien kommer fram till att det är osannolikt att flash-krascher av den magnituden som inträffat i USA 6 maj 2010 inträffar på Stockholmsbörsen idag. Vidare så verkar flash-krascher inte ha särskilt stor påverkan på aktörer på Stockholmsbörsen, däremot kan det finnas en viss oros- och förtroendeproblematik kopplad till flash-krascher som bör tas på allvar. I studien av tidigare forskning finner vi intressanta teorier för hur flash-krascher kan förutses. Vi kan däremot inte dra några slutsatser kring dessa teorier kopplat till Stockholmsbörsen. / Title:  Flash crashes – a severe problem at Nasdaq OMX Stockholm? Authors:  Madelene Söderström & Sebastian Roth Advisor:  Bo Sjö Subject:  Bachelor thesis in finance Purpose:  The purpose of this study is to understand and critically examine the impact flash crashes might have on the market for securities at Nasdaq OMX Stockholm. Our goal is to provide a clearer view on how flash crashes affect the trade and the market participants. Method:  This thesis is a qualitative study based on interviews with respondents with different approach to both Nasdaq OMX Stockholm and the financial market in Sweden. Theory:  The thesis is based on earlier studies within the subject made from data and events from United States of America. Other economic theories that the thesis involve is adverse selection. Empirics:  The study is predicated around seven semi structured interviews with participants on the financial market in Sweden. The interviews are compared with the earlier events from USA to make for conclusions about flash crashes on Nasdaq OMX Stockholm. Conclusion:  We find that it is unlikely that a flash crash of the same magnitude as the May 6, 2010 flash crash will occur on the Nasdaq OMX Stockholm exchange today. Furthermore, flash crashes appear to have little impact on the market participants at Nasdaq OMX Stockholm, though there may be concerns about trust issues following flash crashes that should be considered. While studying some of the earlier research we find interesting theories about ways to predict flash crashes before they have occurred, we can’t make any conclusions about these theories connected to Nasdaq OMX Stockholm though.

Submitted by Helder Antoniazzi (helderua@gmail.com) on 2013-09-11T00:46:59Z No. of bitstreams: 1 Dissertacao 10-set-13.pdf: 970680 bytes, checksum: 19edacf9a47e77bc9b873b8e4fac35ed (MD5) / Approved for entry into archive by Suzinei Teles Garcia Garcia (suzinei.garcia@fgv.br) on 2013-09-11T13:35:54Z (GMT) No. of bitstreams: 1 Dissertacao 10-set-13.pdf: 970680 bytes, checksum: 19edacf9a47e77bc9b873b8e4fac35ed (MD5) / Made available in DSpace on 2013-09-11T13:49:22Z (GMT). No. of bitstreams: 1 Dissertacao 10-set-13.pdf: 970680 bytes, checksum: 19edacf9a47e77bc9b873b8e4fac35ed (MD5) Previous issue date: 2013-08-21 / The present study analyzes the influence of share's market makers on liquidity, validating a proxy that is able to measure transactions costs into secondary market. Since 1984, important papers face the challenge of measuring liquidity and recently a general review was done to compare different measures, finding the most accurate ones. This article intends to revisit these measures and select a metric most suitable to Brazilian market. Once the proxy is chosen, will be then evaluated the relevance of the market maker in determining transaction costs through a modified version of econometric equation from Sanvicente (2012). Lastly, the great contribution of the article is to identify whether the companies should hire a market maker for their stocks, in order to reduce the costs of trading in its shares. / O trabalho tem por objetivo validar a influência dos formadores de mercado de ações sobre a liquidez, uma proxy capaz de medir os custos de transação no mercado secundário de ações. O desafio de medir corretamente a liquidez teve trabalhos relevantes desde 1984, e recentemente foi alvo de uma revisão geral que comparou diversas medidas e encontrou alguns ganhadores. A proposta do presente trabalho é a de revisitar estas medidas e selecionar a métrica mais adequada ao mercado Brasileiro. Escolhida a proxy mais significativa, será então avaliada a relevância do formador de mercado na determinação dos custos de transação por meio de uma versão modificada da equação econométrica de Sanvicente (2012). Por fim, este trabalho será relevante para identificar se as empresas devem contratar formadores de mercado para suas ações, com o fim de reduzirem os custos da negociação de suas ações.

Cette thèse est composée de quatre chapitres. Le premier chapitre traite de l'évaluation de produits financiers dans un modèle comportant un saut pour l'actif risque. Ce saut représente la faillite de l'entreprise correspondante. On étudie alors l'évaluation des prix d'options par indifférence d'utilité dans un cadre d'utilité exponentielle. Par des techniques de programmation dynamique on montre que le prix d'un Bond est solution d'une équation différentielle et le prix d'options dépendantes de l'actif est solution d'une équation aux dérives partielles d'Hamilton-Jacobi-Bellman. Le saut dans la dynamique de l'actif risque induit des différences avec le modèle de Merton que nous tentons de quantifier. Le second chapitre traite d'un marché comportant des sauts : les paris sur le football. Nous rappelons les différentes familles de modèles pour un match de football et introduisons un modèle complet permettant d'évaluer les prix des différents produits apparus sur ce marché ces dix dernières années. La complexité de ce modèle nous amène à étudier un modèle simplifié dont nous étudions les implications et calculons les prix obtenus que l'on compare à la réalité. On remarque que la calibration implicite obtenue génère de très bons résultats en produisant des prix très proches de la réalité. Le troisième chapitre développe le problème de fixation des prix par un teneur de marche monopolistique dans le marché des paris binaires. Ce travail est un prolongement direct au problème introduit par Levitt [Lev04]. Nous généralisons en effet son travail aux cas des paris européens et proposons une méthode pour estimer la méthode de cotation utilisée par le book-maker. Nous montrons que deux hypothèses inextricables peuvent expliquer cette fixation des prix. D'une part, l'incertitude du public sur la vraie valeur ainsi que le caractère extrêmement risque-averse du bookmaker. Le quatrième chapitre prolonge quant à lui cette approche au cas de produits financiers non binaires. Nous examinons différents modèles d'offre et de demande et en déduisons, par des techniques de programmation dynamique, des équations aux dérivées partielles dictant la formation des prix d'achat et de vente. Nous montrons finalement que l'écart entre prix d'achat et prix de vente ne dépend pas de la position du teneur de marche dans l'actif considère. Cependant le prix moyen dépend lui fortement de la quantité détenue par le teneur de marche. Une approche simplifiée est finalement proposée dans le cas multidimensionnel / This thesis is composed of four chapters. The first one deals with the pricing of financial products in a single jump model for the risky asset. This jump represents the bankrupcy of the quoted firm. We study the pricing of derivatives in the context of indifference of utility with an exponential utility. By means of dynamic programming we show that the bond price is solution of an ordinary differential equation and that stock price dependent options are solutions of an equation with partial derivatives of Hamilton-Jacobi-Bellman type generalizing the Black-Scholes one. We then try to quantify differences in the price obtained here and the one from Merton model without jump. The second chapter deals with a specific jump market : the soccer betting market. We recall the different model families for a soccer match and introduce some full model which allows to price the products recently born in this market in last ten years. Nevertheless the model complexity leads us to study a simplified model introduced by Dixon and Robinson from which we are able to derive closed formulas and simulate prices that we compare to market prices. We remark that implicit calibration gives pretty goof fit of market data. Third chapter developps the approach of Levitt [Lev04] on price formation in binary betting market held by a monopolistic market-maker operating in a one time step trading. We generalize Levitt results with european format of betting. We show that prices are distorded on the pressure of demand and offer, that phenomena introducing a market probability that allows to price products under this new measure. We identify some best model for demand and offer and market maker strategy and show that probability change is obvious in case of imperfect information about the value of the product. Fourth chapter generalizes this approach to the case of general payoffs and continuous time. The task is more complex and we just derive partial derivative equations from dynamic programming that enable us to give the bid-ask prices of the product traded by the market-maker. One result is that, in most models, bid-ask spread does not depend on the inventory held by the dealer whereas mid-quote price strongly reflects the unbalance of the dealer

Market microstructure studies the process of exchanging assets underexplicit trading rules. With algorithmic trading and high-frequencytrading, modern financial markets have seen profound changes in marketmicrostructure in the last 5 to 10 years. As a result, previously establishedmethods in the field of market microstructure becomes oftenfaulty or insufficient. Machine learning and, in particular, reinforcementlearning has become more ubiquitous in both finance and otherfields today with applications in trading and optimal execution. This thesisuses reinforcement learning to understand market microstructureby simulating a stock market based on NASDAQ Nordics and trainingmarket maker agents on this stock market. Simulations are run on both a dealer market and a limit orderbook marketdifferentiating it from previous studies. Using DQN and PPO algorithmson these simulated environments, where stochastic optimal controltheory has been mainly used before. The market maker agents successfullyreproduce stylized facts in historical trade data from each simulation,such as mean reverting prices and absence of linear autocorrelationsin price changes as well as beating random policies employed on thesemarkets with a positive profit & loss of maximum 200%. Other tradingdynamics in real-world markets have also been exhibited via theagents interactions, mainly: bid-ask spread clustering, optimal inventorymanagement, declining spreads and independence of inventory and spreads, indicating that using reinforcement learning with PPO and DQN arerelevant choices when modelling market microstructure. / Marknadens mikrostruktur studerar hur utbytet av finansiella tillgångar sker enligt explicita regler. Algoritmisk och högfrekvenshandel har förändrat moderna finansmarknaders strukturer under de senaste 5 till 10 åren. Detta har även påverkat pålitligheten hos tidigare använda metoder från exempelvis ekonometri för att studera marknadens mikrostruktur. Maskininlärning och Reinforcement Learning har blivit mer populära, med många olika användningsområden både inom finans och andra fält. Inom finansfältet har dessa typer av metoder använts främst inom handel och optimal exekvering av ordrar. I denna uppsats kombineras både Reinforcement Learning och marknadens mikrostruktur, för att simulera en aktiemarknad baserad på NASDAQ i Norden. Där tränas market maker - agenter via Reinforcement Learning med målet att förstå marknadens mikrostruktur som uppstår via agenternas interaktioner. I denna uppsats utvärderas och testas agenterna på en dealer – marknad tillsammans med en limit - orderbok. Vilket särskiljer denna studie tillsammans med de två algoritmerna DQN och PPO från tidigare studier. Främst har stokastisk optimering använts för liknande problem i tidigare studier. Agenterna lyckas framgångsrikt med att återskapa egenskaper hos finansiella tidsserier som återgång till medelvärdet och avsaknad av linjär autokorrelation. Agenterna lyckas också med att vinna över slumpmässiga strategier, med maximal vinst på 200%. Slutgiltigen lyckas även agenterna med att visa annan handelsdynamik som förväntas ske på en verklig marknad. Huvudsakligen: kluster av spreads, optimal hantering av aktielager och en minskning av spreads under simuleringarna. Detta visar att Reinforcement Learning med PPO eller DQN är relevanta val vid modellering av marknadens mikrostruktur.