Optimal Adaptive Market Making: A Theoretical Framework for High-Yield Liquidity Provision in Perpetual Futures Markets
We develop a rigorous theoretical framework for optimal market making in perpetual futures markets with zero maker fees. We model the market maker's problem as a stochastic optimal control problem on a filtered probability space, where the controls are adaptive bid-ask spreads and inventory hedging decisions across two exchanges. Our contributions include: (i) a PnL decomposition theorem separating revenue into spread income, adverse selection loss, inventory carrying cost, hedging friction, and funding rate exposure; (ii) the Hamilton-Jacobi-Bellman equation for the joint spread-inventory-hedging control problem under CARA utility with a verification theorem; (iii) High-APY Regime Theore...
| Authors | Minmin Zeng, Yi Liu |
|---|---|
| Primary category | cs.AI |
| Published | 5 April 2026 |
| Last updated at source | 5 April 2026 |
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