Liquidity Provision and Rebate Design in Option Markets

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Highly relevant for firms engaged in option market making and exchanges designing fee structures. It provides a rigorous mathematical framework for balancing inventory risk with liquidity incentives, directly applicable to algorithmic trading strategies in derivatives markets.

High complexity due to the need to solve coupled systems of HJBQVIs using penalty methods and semi-implicit Euler schemes. Requires strong background in stochastic control, numerical analysis, and market microstructure.

The paper provides detailed mathematical derivations, parameter tables (Table 1), and estimation procedures for spread Markov chains and execution intensities (Appendix B). It uses CBOE Level 1 data, which is publicly available, though the specific raw dataset processing steps are described but not provided as a direct download link.