Dear colleagues,

you are all invited to participate in the following seminar organized by QFinLab - Department of Mathematics, Politecnico di Milano.

Monday, 27 January 2025, 16.00-17.00 Seminar room, third floor, building 14, Via Bonardi 9, Milano (Leonardo Campus)

Adrien Mathieu (Oxford University)

Title: Market Making with fads, Informed and Uninformed traders.

Abstract: We characterize the solutions to a continuous-time optimal liquidity provision problem in a market populated by informed and uninformed traders. In our model, the asset price exhibits fads -- these are short-term deviations from the fundamental value of the asset. Conditional on the value of the fad, we model how informed traders and uninformed traders arrive in the market. The market maker knows of the two groups of traders but only observes the anonymous order arrivals. We study both the complete information and the partial information versions of the control problem faced by the market maker. In such frameworks, we characterize the value of information, and we find the price of liquidity as a function of the proportion of informed traders in the market. Lastly, for the partial information setup, we explore how to go beyond the Kalman-Bucy filter to extract information about the fad from the market arrivals.

Next seminar: Marzia De Donno (Università Cattolica del Sacro Cuore), 19 February 12:15.

All news can be found on the QFinLab webpagehttps://www.qfinlab.polimi.it/seminars-and-meetings/.

The organizers: Michele Azzone and Alessandro Calvia.