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Quantitative Finance · Begrippenlijst

Wat is End-of-day flattening?

Definition 11.4 Market Making and High-Frequency Trading · Hoofdstuk 11 — Hedging and Inventory in Practice

End-of-day flattening is the reduction of a market maker’s positions towards zero before the close, through its quotes, through orders in the continuous market or in the closing auction, or by hedging what remains with an instrument that trades overnight.

Hedging cost against intraday risk (the one-minute P&L’s standard deviation scaled to a day) for seven rules: no hedge, the future kept within half a contract of the book’s delta-equivalent inventory, the future outside no-trade bands of $100 000 to $1 million, and every name traded back to $20 000 in its own stock. Forty names, ten simulated days, spread income $46 800 a day. Data: hf_hedging.frontier.
Figure 11.1. Hedging cost against intraday risk (the one-minute P&L’s standard deviation scaled to a day) for seven rules: no hedge, the future kept within half a contract of the book’s delta-equivalent inventory, the future outside no-trade bands of $100 000 to $1 million, and every name traded back to $20 000 in its own stock. Forty names, ten simulated days, spread income $46 800 a day. Data: hf_hedging.frontier.
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