A hard exit threshold strategy for market-makers
A closed-form solution to derive optimal stop-loss and profit-taking levels is presented
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Despite invaluable insights from existing research into the optimisation of risk exposure and expected profits, market-makers often need to apply pragmatic risk mitigants to limit the severity of outcomes. David Shelton and Carlos Veiga derive closed-form formulas to optimise hard exit thresholds (ie, stop-loss and take-profit levels and a maximum holding time). The approach yields relationships between profitability, spread size, trade arrival intensity and adverse
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