Related papers: Optimal Bookmaking
This paper studies Markov perfect equilibria in a repeated duopoly model where sellers choose algorithms. An algorithm is a mapping from the competitor's price to own price. Once set, algorithms respond quickly. Customers arrive randomly…
We characterize the optimal reward functions (scoring rules) that incentivize an agent to acquire information and report it truthfully to the principal. The optimal scoring rules let the agent make a simple binary bet in single-dimensional…
We consider a nonlinear pricing environment with private information. We provide profit guarantees (and associated mechanisms) that the seller can achieve across all possible distributions of willingness to pay of the buyers. With a…
We study the problem of option pricing and hedging strategies within the frame-work of risk-return arguments. An economic agent is described by a utility function that depends on profit (an expected value) and risk (a variance). In the…
Since they were authorized by the U.S. Security and Exchange Commission in 1998, electronic exchanges have boomed, and by 2010 high frequency trading accounted for over 70% of equity trades in the US. Such markets are thought to increase…
We consider a model where an agent has a repeated decision to make and wishes to maximize their total payoff. Payoffs are influenced by an action taken by the agent, but also an unknown state of the world that evolves over time. Before…
We define and study a lending game to model the interbank money market, in which lending banks strategically allocate their cash to borrowing banks. The interest rate offered by each borrowing bank is within the interest rate corridor set…
Models of auctions or tendering processes are introduced. In every round of bidding the players select their bid from a probability distribution and whenever a bid is unsuccessful, it is discarded and replaced. For simple models, the…
Over the past few years, the futures market has been successfully developing in the North-West region. Futures markets are one of the most effective and liquid-visible trading mechanisms. A large number of buyers are forced to compete with…
Price benchmarks are used to incorporate market price trends into contracts, but their use can create opportunities for manipulation by parties involved in the contract. This paper examines this issue using a realistic and tractable model…
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 investigate stochastic differential games of optimal trading comprising a finite population. There are market frictions in the present framework, which take the form of stochastic permanent and temporary price impacts. Moreover,…
We consider a deterministic mean field games problem in which a typical agent solves an optimal control problem where the dynamics is affine with respect to the control and the cost functional has a growth which is polynomial with respect…
For zero-sum two-player continuous-time games with integral payoff and incomplete information on one side, one shows that the optimal strategy of the informed player can be computed through an auxiliary optimization problem over some…
We consider a discrete-time financial market model with finite time horizon and give conditions which guarantee the existence of an optimal strategy for the problem of maximizing expected terminal utility. Equivalent martingale measures are…
Prediction markets are useful for estimating probabilities of claims whose truth will be revealed at some fixed time -- this includes questions about the values of real-world events (i.e. statistical uncertainty), and questions about the…
We consider a stochastic differential equation that is controlled by means of an additive finite-variation process. A singular stochastic controller, who is a minimizer, determines this finite-variation process, while a discretionary…
We study the following fundamental data-driven pricing problem. How can/should a decision-maker price its product based on data at a single historical price? How valuable is such data? We consider a decision-maker who optimizes over…
Many real-world games contain parameters which can affect payoffs, action spaces, and information states. For fixed values of the parameters, the game can be solved using standard algorithms. However, in many settings agents must act…
We study an optimal execution strategy for purchasing a large block of shares over a fixed time horizon. The execution problem is subject to a general price impact that gradually dissipates due to market resilience. We allow for general…