Market Making Random Walk Interview Questions
Market making random walk interview questions for quoting path-dependent markets, hitting probabilities, and state updates.
Candidates combining probability states with market making.
Random walks are stateful
The current position, barriers, remaining time, and transition probabilities define the market. Quote from the current state, not the starting state.
Hitting probability can be fair value
For a binary contract that pays if a barrier is hit, the hitting probability maps directly to fair value on a binary payoff scale.
Concrete example
If a toy contract pays 100 if a walk hits the upper barrier first and you estimate that probability at 40 percent, fair value is about 40.
Update after each step
A move closer to a barrier can change fair value and uncertainty. The quote should follow the new state.
Path constraints matter
Time remaining, absorbing barriers, and stopping rules can all change the fair value.
Common mistakes
Candidates often treat a random-walk market as static. The current state is the market.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.