Market Maker Game - quote a spread, manage inventory

Quote bid and ask around a random-walking fair value for 10 rounds, computing Avellaneda-Stoikov reservation prices while informed flow tries to pick you off.

You pick a stake ($5 to $50 per tick of P&L against a $100 bankroll) and make markets for 10 rounds around a fair value that starts at 100. Each round a hidden truth is generated before you act: with probability 0.35 the flow is informed - it already knows fair value is about to move 2 ticks in its favour - and otherwise it is noise flow with a random 1-tick background move. When a round is informed, there is a 55% chance you are shown a tip (informed BUYING or SELLING likely); otherwise the round reads quiet.

Each round has two checkpoints before your quote goes out. First you compute the Avellaneda-Stoikov reservation price r = fair - q x gamma x sigma^2 x (T - t), with gamma = 1, sigma = 1.5, your current inventory q, and T - t the fraction of the session remaining; you type r and the game checks it to within 0.15 ticks, then reveals the optimal spread delta = gamma sigma^2 (T - t) + (2/gamma) ln(1 + gamma/kappa) with kappa = 1, and sets your half-spread and skew from the model. Second, you answer one quiz question drawn from a bank tied to the live round - expected value per fill or per round, the adverse-selection breakeven, which way to skew on a signal or an inventory position, flatten cost, put-call parity, straddle pricing, or hedging cost.

Then the quote resolves. Wider half-spreads fill less often (fill probability is 1 - 0.2 per tick of half-spread beyond 1, floored at 20%). If filled, a buy-side counterparty lifts your ask at fair + half + skew (you go short one unit) or a seller hits your bid at fair - half + skew (you go long one). Fair value then moves by the round's truth, inventory is marked to market every round, and at the end - or earlier, via the flatten-and-cash-out button - remaining inventory is closed at a cost of 0.5 ticks per unit.

Why quant interviews test this

Market-making interviews at trading firms lean on this material. 'Make me a market' questions test whether you widen for uncertainty and skew for inventory; adverse-selection questions ('why is there a bid-ask spread?', 'what happens if you quote too tight?') are the breakeven arithmetic this game's quiz drills; and Avellaneda-Stoikov is the model quant-trading and e-trading desks name when they ask how optimal quotes should respond to inventory, volatility, and time to close.

The quiz bank doubles as flash cards for adjacent staples - put-call parity (c - p = S - K, so at-the-money call equals put), straddle pricing as call plus put, and the fact that hedging costs eat into captured edge. Being able to compute r and delta mentally, and to explain each term's economics, is a strong signal in any options or delta-one market-making interview.

The Market Maker guide covers how scoring works, the strategy that wins, a worked example and the mistakes most players make.

More Finance games

• Basket Arbitrage - Twenty basket-pricing puzzles on one 8-minute clock. Find the mispriced basket, replicate it from the component cards and execute with every commodity netted to zero.
• Delta Defender - Write a hedgeRatio function that tracks a short call's true Black-Scholes delta across a fresh random scenario and GBM price path every run.
• All Finance practice
• Every game guide