Interview of Dr. David Simchi-Levy, MIT; Editor-in-Chief Operations Research

http://www.essec.edu | Optimal Market-Making with Risk Aversion. Market-makers have the obligation to trade fixed amounts of securities at quoted bid or ask prices, and their inventories are exposed to the potential loss when the market price moves in an undesirable direction. One approach to reduce the risk brought by price uncertainty is to adjust the inventory at the price of losing potential spread gain. Using stochastic dynamic programming, we show that a threshold inventory control policy is optimal with respect to an exponential utility criterion, and more general results are obtained for mean-variance analysis.

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Education

Tags:

• ESSEC
• ESSEC Business School
• Ecole de commerce
• Interview
• Dr. David Simchi-Levy
• Operations Research
• Optimal Market-Making
• Risk Aversion
• MIT