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What is Inventory Management with Transaction Costs about?

This paper addresses optimal inventory management for market-makers facing proportional transaction costs and inventory shocks modeled by a compound Poisson process. It establishes that the presence of inventory shocks widens the no-trading region, suggesting that market-makers should trade less frequently to minimize costs. The findings highlight a link between liquidity, markups, and inventory management strategies in financial markets, particularly relevant for decentralized trading environments like For

Author

szery

Language

EN