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Quantitative Finance · Glossary

What is Reservation price?

Definition 3.3 Market Making and High-Frequency Trading · Chapter 3 — Inventory Models

The reservation price of a market maker holding qq is the price at which it is indifferent to its current position and one more or one fewer unit; in the Avellaneda–Stoikov model, approximately

Stres=St−qt γσ2 (T−t).S^{\mathrm{res}}_t=S_t-q_t\,\gamma\sigma^2\,(T-t).
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