Papers › Logarithmic regret in the ergodic Avellaneda-Stoikov market making model
Logarithmic regret in the ergodic Avellaneda-Stoikov market making model
Jialun Cao, David Šiška, Lukasz Szpruch, Tanut Treetanthiploet
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We analyse the regret arising from learning the price sensitivity parameter κ of liquidity takers in the ergodic version of the Avellaneda-Stoikov market making model. We show that a learning algorithm based on a maximum-likelihood estimator for the parameter achieves the regret upper bound of order ln² T in expectation. To obtain the result we need two key ingredients. The first is the twice differentiability of the ergodic constant under the misspecified parameter in the Hamilton-Jacobi-Bellman (HJB) equation with respect to κ, which leads to a second--order performance gap. The second is the learning rate of the regularised maximum-likelihood estimator which is obtained from concentration inequalities for Bernoulli signals. Numerical experiments confirm the convergence and the robustness of the proposed algorithm.
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