Optimal Quote Expiration refers to the analytically determined ideal duration for which a market maker’s price quotation remains valid, balancing freshness with the probability of execution. It is a key parameter for managing market maker risk in dynamic crypto trading environments.
Mechanism
This duration is calculated by considering multiple factors: prevailing market volatility, observed changes in order book depth, network latency, and the market maker’s current inventory risk. The objective is to ensure the quote accurately reflects current market conditions without being so short that it reduces execution opportunities.
Methodology
The strategic aim of optimizing quote expiration is to minimize the risk of filling stale orders while maximizing the number of successful trades. By dynamically adjusting expiration times, market makers can improve their profitability, enhance capital efficiency, and maintain competitive liquidity provision in fast-moving digital asset markets.
Dynamic quantitative models predict optimal quote expiration, enhancing capital efficiency and mitigating adverse selection in volatile digital asset markets.
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