Related papers: Optimal market making
Problem definition: Traditional monopoly pricing assumes sellers have full information about consumer valuations. We consider monopoly pricing under limited information, where a seller only knows the mean, variance and support of the…
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…
We consider a market where a finite number of players trade an asset whose supply is a stochastic process. The price formation problem consists of finding a price process that ensures that when agents act optimally to minimize their trading…
We consider a monopolist seller with $n$ heterogeneous items, facing a single buyer. The buyer has a value for each item drawn independently according to (non-identical) distributions, and her value for a set of items is additive. The…
We study multi-item profit maximization when there is an underlying distribution over buyers' values. In practice, a full description of the distribution is typically unavailable, so we study the setting where the mechanism designer only…
In day-ahead electricity markets based on uniform marginal pricing, small variations in the offering and bidding curves may substantially modify the resulting market outcomes. In this work, we deal with the problem of finding the optimal…
We study the optimal execution of market and limit orders with permanent and temporary price impacts as well as uncertainty in the filling of limit orders. Our continuous-time model incorporates a trade speed limiter and a trader director…
As demonstrated during the recent financial crisis, regulators require additional analytical tools to assess systemic risk in the financial sector. This paper describes one such tool; namely a novel market modeling and analysis capability.…
We construct an utility-based dynamic asset pricing model for a limit order market. The price is nonlinear in volume and subject to market impact. We solve an optimal hedging problem under the market impact and derive the dynamics of the…
Budgets play a significant role in real-world sequential auction markets such as those implemented by internet companies. To maximize the value provided to auction participants, spending is smoothed across auctions so budgets are used for…
Dynamic pricing schemes were introduced as an alternative to posted-price mechanisms. In contrast to static models, the dynamic setting allows to update the prices between buyer-arrivals based on the remaining sets of items and buyers, and…
We consider a trading marketplace that is populated by traders with diverse trading strategies and objectives. The marketplace allows the suppliers to list their goods and facilitates matching between buyers and sellers. In return, such a…
Posted price mechanisms are prevalent in allocating goods within online marketplaces due to their simplicity and practical efficiency. We explore a fundamental scenario where buyers' valuations are independent and identically distributed,…
A hypothetical risk-neutral agent who trades to maximize the expected profit of the next trade will approximately exhibit long-term optimal behavior as long as this agent uses the vector $p = \nabla V (t, x)$ as effective microstructure…
The efficient market hypothesis (EMH) famously stated that prices fully reflect the information available to traders. This critically depends on the transfer of information into prices through trading strategies. Traders optimise their…
We study the problem of optimal trading using general alpha predictors with linear costs and temporary impact. We do this within the framework of stochastic optimization with finite horizon using both limit and market orders. Consistently…
Selling a single item to $n$ self-interested buyers is a fundamental problem in economics, where the two objectives typically considered are welfare maximization and revenue maximization. Since the optimal mechanisms are often impractical…
We construct and study market models admitting optimal arbitrage. We say that a model admits optimal arbitrage if it is possible, in a zero-interest rate setting, starting with an initial wealth of 1 and using only positive portfolios, to…
We propose a stochastic game modelling the strategic interaction between market makers and traders of optimal execution type. For traders, the permanent price impact commonly attributed to them is replaced by quoting strategies implemented…
The focus of this paper is on identifying the most effective selling strategy for pairs trading of stocks. In pairs trading, a long position is held in one stock while a short position is held in another. The goal is to determine the…