Related papers: How much market making does a market need?
We derive a continuous time model for the joint evolution of the mid price and the bid-ask spread from a multiscale analysis of the whole limit order book (LOB) dynamics. We model the LOB as a multiclass queueing system and perform our…
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 propose a unified mean-field framework that bridges the dynamics of informal financial markets and formal markets governed by Limit Order Books (LOBs). Both settings are modeled as interacting particle systems on a 1D price lattice, with…
Market participants regularly send bid and ask quotes to exchange-operated limit order books. This creates an optimization challenge where their potential profit is determined by their quoted price and how often their orders are…
We study a natural combinatorial pricing problem for sequentially arriving buyers with equal budgets. Each buyer is interested in exactly one pair of items and purchases this pair if and only if, upon arrival, both items are still available…
We develop an empirical behavioural order-driven (EBOD) model, which consists of an order placement process and an order cancellation process. Price limit rules are introduced in the definition of relative price. The order placement process…
In this chapter we review some recent results on the dynamics of price formation in financial markets and its relations with the efficient market hypothesis. Specifically, we present the limit order book mechanism for markets and we…
Central results in economics guarantee the existence of efficient equilibria for various classes of markets. An underlying assumption in early work is that agents are price-takers, i.e., agents honestly report their true demand in response…
In this research, we have empirically investigated the key drivers affecting liquidity in equity markets. We illustrated how theoretical models, such as Kyle's model, of agents' interplay in the financial markets, are aligned with the…
We introduce solvable stochastic dealer models, which can reproduce basic empirical laws of financial markets such as the power law of price change. Starting from the simplest model that is almost equivalent to a Poisson random noise…
The author seeks to develop a model to alter the bid-offer spread, currently quoted by market makers, that varies with the market and trading conditions. The dynamic nature of financial markets and trading, as with the rest of social…
We consider a single security market based on a limit order book and two investors, with different speeds of trade execution. If the fast investor can front-run the slower investor, we show that this allows the fast trader to obtain risk…
We investigate the behavior of limit order books on the meso-scale motivated by order execution scheduling algorithms. To do so we carry out empirical analysis of the order flows from market and limit order submissions, aggregated from…
We study a problem inspired by regulated health insurance markets, such as those created by the government in the Affordable Care Act Exchanges or by employers when they contract with private insurers to provide plans for their employees.…
In economics, there are many ways to describe the interaction between a "seller" and a "buyer". The most common one, with which we interact almost every day, is selling for a fixed price. This option is perfect for selling a mass product,…
In this study, we develop a theoretical model of strategic equilibrium bidding and price-setting behaviour by heterogeneous and boundedly rational electricity producers and a grid operator in a single electricity market under uncertain…
Ensuring sufficient liquidity is one of the key challenges for designers of prediction markets. Various market making algorithms have been proposed in the literature and deployed in practice, but there has been little effort to evaluate…
We study a linear price impact model including other liquidity takers, whose flow of orders either follows a Poisson or a Hawkes process. The optimal execution problem is solved explicitly in this context, and the closed-formula optimal…
When modelling stock market dynamics, the price formation is often based on an equilbrium mechanism. In real stock exchanges, however, the price formation is goverend by the order book. It is thus interesting to check if the resulting…
In order-driven markets, limit-order book (LOB) resiliency is an important microscopic indicator of market quality when the order book is hit by a liquidity shock and plays an essential role in the design of optimal submission strategies of…