Related papers: Dark-Pool Perspective of Optimal Market Making
Automated market makers (AMMs) have emerged as the dominant market mechanism for trading on decentralized exchanges implemented on blockchains. This paper presents a single mechanism that targets two important unsolved problems for AMMs:…
We study the optimal timing of derivative purchases in incomplete markets. In our model, an investor attempts to maximize the spread between her model price and the offered market price through optimally timing her purchase. Both the…
Latency (i.e., time delay) in electronic markets affects the efficacy of liquidity taking strategies. During the time liquidity takers process information and send marketable limit orders (MLOs) to the exchange, the limit order book (LOB)…
We consider a broker who has to place a large order which consumes a sizable part of average daily trading volume. The broker's aim is thus to minimize execution costs he incurs from the adverse impact of his trades on market prices. By…
With the fragmentation of electronic markets, exchanges are now competing in order to attract trading activity on their platform. Consequently, they developed several regulatory tools to control liquidity provision / consumption on their…
In this article, we provide a flexible framework for optimal trading in an asset listed on different venues. We take into account the dependencies between the imbalance and spread of the venues, and allow for partial execution of limit…
We study a constrained stochastic control problem with jumps; the jump times of the controlled process are given by a Poisson process. The cost functional comprises quadratic components for an absolutely continuous control and the…
In this work we study a finite horizon optimal liquidation problem with multiplicative price impact in algorithmic trading, using market orders. We analyze the case when an agent is trading on a market with two financial assets, whose…
We show that the cost of market orders and the profit of infinitesimal market-making or -taking strategies can be expressed in terms of directly observable quantities, namely the spread and the lag-dependent impact function. Imposing that…
We study how to maximize the broker's (expected) profit in a two-sided market, where she buys items from a set of sellers and resells them to a set of buyers. Each seller has a single item to sell and holds a private value on her item, and…
We model the behavior of three agent classes acting dynamically in a limit order book of a financial asset. Namely, we consider market makers (MM), high-frequency trading (HFT) firms, and institutional brokers (IB). Given a prior dynamic of…
A novel high-frequency market-making approach in discrete time is proposed that admits closed-form solutions. By taking advantage of demand functions that are linear in the quoted bid and ask spreads with random coefficients, we model the…
A small investor provides liquidity at the best bid and ask prices of a limit order market. For small spreads and frequent orders of other market participants, we explicitly determine the investor's optimal policy and welfare. In doing so,…
In a market with one safe and one risky asset, an investor with a long horizon, constant investment opportunities, and constant relative risk aversion trades with small proportional transaction costs. We derive explicit formulas for the…
In this article we consider an optimization problem of expected utility maximization of continuous-time trading in a financial market. This trading is constrained by a benchmark for a utility-based shortfall risk measure. The market…
A ubiquitous learning problem in today's digital market is, during repeated interactions between a seller and a buyer, how a seller can gradually learn optimal pricing decisions based on the buyer's past purchase responses. A fundamental…
Motivated by applications in online marketplaces such as ride-hailing, we study how strategic servers impact the system performance. We consider a discrete-time process in which, heterogeneous types of customers and servers arrive. Each…
Managing a book of options on several underlying involves controlling positions of several thousands of financial assets. It is one of the most challenging financial problems involving both pricing and microstructural modeling. An options…
We study the problem of maximizing payoff generated over a period of time in a general class of closed queueing networks with a finite, fixed number of supply units which circulate in the system. Demand arrives stochastically, and serving a…
We address the problem of combined stochastic and impulse control for a market maker operating in a limit order book. The problem is formulated as a Hamilton-Jacobi-Bellman quasi-variational inequality (HJBQVI). We propose an implicit…