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We prove the Fundamental Theorem of Asset Pricing for a discrete time financial market where trading is subject to proportional transaction cost and the asset price dynamic is modeled by a family of probability measures, possibly…
We consider a class of learning problems in which an agent liquidates a risky asset while creating both transient price impact driven by an unknown convolution propagator and linear temporary price impact with an unknown parameter. We…
In this paper I empirically investigate prediction markets for binary options. Advocates of prediction markets have suggested that asset prices are consistent estimators of the "true" probability of a state of the world being realized. I…
Linear regression on network-linked observations has been an essential tool in modeling the relationship between response and covariates with additional network structures. Previous methods either lack inference tools or rely on restrictive…
In this paper we explore optimal liquidation in a market populated by a number of heterogeneous market makers that have limited inventory-carrying and risk-bearing capacity. We derive a reduced form model for the dynamic of their aggregated…
Market impact is the link between the volume of a (large) order and the price move during and after the execution of this order. We show that under no-arbitrage assumption, the market impact function can only be of power-law type.…
What are the key-features that enable an information diffusion model to explain the inherent dynamic, and often competitive, nature of real-world propagation phenomena? In this paper we aim to answer this question by proposing a novel class…
We introduce a discrete binary tree for pricing contingent claims with the underlying security prices exhibiting history dependence characteristic of that induced by market microstructure phenomena. Example dependencies considered include…
In this paper, a practicable simulation-free model order reduction method by nonlinear moment matching is developed. Based on the steady-state interpretation of linear moment matching, we comprehensively explain the extension of this…
We introduce a price impact model which accounts for finite market depth, tightness and resilience. Its coupled bid- and ask-price dynamics induce convex liquidity costs. We provide existence of an optimal solution to the classical problem…
In both finance and economics, quantitative models are usually studied as isolated mathematical objects --- most often defined by very strong simplifying assumptions concerning rationality, efficiency and the existence of disequilibrium…
In financial markets, the order flow, defined as the process assuming value one for buy market orders and minus one for sell market orders, displays a very slowly decaying autocorrelation function. Since orders impact prices, reconciling…
We study an online market-making problem in which a learner sequentially posts bid and ask prices for a single asset while interacting with traders holding private valuations. Unlike existing online learning formulations that assume fully…
Accurate and efficient imbalance electricity price forecasting is critical for industrial energy trading systems, especially as battery assets and automated bidding pipelines increasingly participate in balancing markets. However, real-time…
An agent-based model for financial markets has to incorporate two aspects: decision making and price formation. We introduce a simple decision model and consider its implications in two different pricing schemes. First, we study its…
In auction and matching markets, estimating the welfare effects of demand-side treatments is challenging because of spillovers through the mechanism. We develop a quasi-experimental approach that avoids parametric assumptions typically…
One popular approach to model the limit order books dynamics of the best bid and ask at level-1 is to use the reduced-form diffusion approximations. It is well known that the biggest contributing factor to the price movement is the…
A consistency criterion for price impact functions in limit order markets is proposed that prohibits chain arbitrage exploitation. Both the bid-ask spread and the feedback of sequential market orders of the same kind onto both sides of the…
Presented is an analytic microeconomic model of the temporal price dispersion of homogeneous goods in polypoly markets. This new approach is based on the idea that the price dispersion has its origin in the dynamics of the purchase process.…
A simple Ising spin model which can describe the mechanism of price formation in financial markets is proposed. In contrast to other agent-based models, the influence does not flow inward from the surrounding neighbors to the center site,…