Clearing prices under margin calls and the short squeeze
Mathematical Finance
2022-04-19 v4 General Finance
Risk Management
Abstract
In this paper, we propose a clearing model for prices in a financial markets due to margin calls on short sold assets. In doing so, we construct an explicit formulation for the prices that would result immediately following asset purchases and a margin call. The key result of this work is the determination of a threshold short interest ratio which, if exceeded, results in the discontinuity of the clearing prices due to a feedback loop.
Keywords
Cite
@article{arxiv.2102.02176,
title = {Clearing prices under margin calls and the short squeeze},
author = {Zachary Feinstein},
journal= {arXiv preprint arXiv:2102.02176},
year = {2022}
}