Quant Memo
Market Making/●●●●●

Put a number on the inventory skew

You quote a stock with fair value 200.00200.00. Random flow has left you long q=40,000q = 40{,}000 shares. Your desk's inventory penalty is γσ2T=5×107\gamma\,\sigma^2 T = 5 \times 10^{-7} per share, and your target half-spread is \0.03$.

Compute your reservation price and your two-sided quote, and compare it to the symmetric quote you would post while flat.

Show a hint

Reservation price first: r=fairqγσ2Tr = \text{fair} - q\,\gamma\,\sigma^2 T. Then place the half-spread on each side of rr, not of fair.

Your answer

This one is open-ended. Work it through, then check your reasoning against the full solution.

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