Related papers: Measuring market liquidity: An introductory survey
Most of parameters used to describe states and dynamics of financial market depend on proportions of the appropriate variables rather than on their actual values. Therefore, projective geometry seems to be the correct language to describe…
Market makers provide liquidity to other market participants: they propose prices at which they stand ready to buy and sell a wide variety of assets. They face a complex optimization problem with both static and dynamic components. They…
Crashes have fascinated and baffled many canny observers of financial markets. In the strict orthodoxy of the efficient market theory, crashes must be due to sudden changes of the fundamental valuation of assets. However, detailed empirical…
As the FX markets continue to evolve, many institutions have started offering passive access to their internal liquidity pools. Market makers act as principal and have the opportunity to fill those orders as part of their risk management,…
The primary objective of this paper is to conceive and develop a new methodology to detect notable changes in liquidity within an order-driven market. We study a market liquidity model which allows us to dynamically quantify the level of…
In the information-based approach to asset pricing the market filtration is modelled explicitly as a superposition of signals concerning relevant market factors and independent noise. The rate at which the signal is revealed to the market…
A great deal of academic and theoretical work has been dedicated to optimal liquidation of large orders these last twenty years. The optimal split of an order through time (`optimal trade scheduling') and space (`smart order routing') is of…
We study the emergence of instabilities in a stylized model of a financial market, when different market actors calculate prices according to different (local) market measures. We derive typical properties for ensembles of large random…
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
Price-mediated contagion occurs when a positive feedback loop develops following a drop in asset prices which forces banks and other financial institutions to sell their holdings. Prior studies of such events fix the level of market…
The effect of leverage on liquidity is a tool for analysing the level of liquidity for a given production process. It measures the sensitivity of the level of liquidity that results from changes in the volume of production and unit…
Financial bubbles and crashes have repeatedly caused economic turmoil notably but not only during the 2008 financial crisis. However, both in the popular press as well as scientific publications, the meaning of bubble is sometimes…
The disbalance of Supply and Demand is typically considered as the driving force of the markets. However, the measurement or estimation of Supply and Demand at price different from the execution price is not possible even after the…
Market efficiency at least requires the absence of weak arbitrage opportunities, but this is not sufficient to establish a situation where the market is sensitive, i.e., where it "fully reflects" or "rapidly adjusts to" some information…
We propose a dynamical theory of market liquidity that predicts that the average supply/demand profile is V-shaped and {\it vanishes} around the current price. This result is generic, and only relies on mild assumptions about the order flow…
We develop a theory which applies to any market dynamics that satisfy a fair market assumption on the nullity of the average profit of simple market making strategies. We show that for any such fair market, there exists a martingale fair…
We postulates, and then show experimentally, that liquidity deficit is the driving force of the markets. In the first part of the paper a kinematic of liquidity deficit is developed. The calculus-like approach, which is based on…
This research investigates liquidity dynamics in fractional ownership markets, focusing on illiquid alternative investments traded on a FinTech platform. By leveraging empirical data and employing agent-based modeling (ABM), the study…
Prediction markets rely on liquidity to convert trades into informative prices, yet existing mechanisms fix liquidity ex ante. This restriction enforces a static trade-off between price responsiveness and worst-case loss despite inherently…
Systemic risk refers to the risk that the financial system is susceptible to failures due to the characteristics of the system itself. The tremendous cost of systemic risk requires the design and implementation of tools for the efficient…