Related papers: Optimal Bookmaking
Prediction markets allow traders to bet on potential future outcomes. These markets exist for weather, political, sports, and economic forecasting. Within this work we consider a decentralized framework for prediction markets using…
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…
A decision maker observes the evolving state of the world while constantly trying to predict the next state given the history of past states. The ability to benefit from such predictions depends not only on the ability to recognize patters…
We introduce a dynamic mechanism design problem in which the designer wants to offer for sale an item to an agent, and another item to the same agent at some point in the future. The agent's joint distribution of valuations for the two…
In financial markets, agents often mutually influence each other's investment strategies and adjust their strategies to align with others. However, there is limited quantitative study of agents' investment strategies in such scenarios. In…
In settings where full incentive-compatibility is not available, such as core-constraint combinatorial auctions and budget-balanced combinatorial exchanges, we may wish to design mechanisms that are as incentive-compatible as possible. This…
An accumulator is a bet that presents a rather unique payout structure, in that it combines multiple bets into a wager that can generate a total payout given by the multiplication of the individual odds of its parts. These potentially…
We develop an approach to solve Barberis (2012)'s casino gambling model in which a gambler whose preferences are specified by the cumulative prospect theory (CPT) must decide when to stop gambling by a prescribed deadline. We assume that…
We use the fertile ground of betting markets to study the anticipation of major news in financial markets. While there is a considerable body of literature on the accuracy and efficiency of betting markets after important in-match events,…
Randomized mechanisms, which map a set of bids to a probability distribution over outcomes rather than a single outcome, are an important but ill-understood area of computational mechanism design. We investigate the role of randomized…
We consider a general formulation of the Principal-Agent problem with a lump-sum payment on a finite horizon, providing a systematic method for solving such problems. Our approach is the following: we first find the contract that is optimal…
Lotteries are a prevalent form of gambling between a seller and buyers. Designing a lottery requires a model of how buyers make decisions when confronted with uncertain outcomes. Cumulative prospect theory (CPT) is a descriptive model that…
Trading large volumes of a financial asset in order driven markets requires the use of algorithmic execution dividing the volume in many transactions in order to minimize costs due to market impact. A proper design of an optimal execution…
In the large financial market, which is described by a model with countably many traded assets, we formulate the problem of the expected utility maximization. Assuming that the preferences of an economic agent are modeled with a stochastic…
How do large-scale participants in parimutuel wagering events affect the house and ordinary bettors? A standard narrative suggests that they may temporarily benefit the former at the expense of the latter. To approach this problem, we begin…
In an equity market model with "Knightian" uncertainty regarding the relative risk and covariance structure of its assets, we characterize in several ways the highest return relative to the market that can be achieved using nonanticipative…
The aim of this work consists in the study of the optimal investment strategy for a behavioural investor, whose preference towards risk is described by both a probability distortion and an S-shaped utility function. Within a continuous-time…
In this paper, we analyze dynamic programming as a novel approach to solve the problem of maximizing the profits of a bank. The mathematical model of the problem and the description of a bank's work is described in this paper. The problem…
We extend the projective covariant bookmaker's bets model to the forecasting gamblers case. The probability of correctness of forecasts shifts probabilities of branching. The formula for the shift of probabilities leads to the velocity…
Empirical evidence suggests that even the most competitive markets are not strictly efficient. Price histories can be used to predict near future returns with a probability better than random chance. Many markets can be considered as {\it…