Related papers: Optimal Bookmaking
This paper investigates the optimal hedging strategies of an informed broker interacting with multiple traders in a financial market. We develop a theoretical framework in which the broker, possessing exclusive information about the drift…
This paper studies optimal market making for large-tick assets in the presence of latency. We consider a random walk model for the asset price, and formulate the market maker's optimization problem using Markov Decision Processes (MDP). We…
We consider a prediction market in which all aspects are controlled by market forces, in particular the correct outcomes of events are decided by the market itself rather than by trusted arbiters. This kind of a decentralized prediction…
In many areas of industry and society, e.g., energy, healthcare, logistics, agents collect vast amounts of data that they deem proprietary. These data owners extract predictive information of varying quality and relevance from data…
In markets where algorithmic data processing is increasingly prevalent, recommendation algorithms can substantially affect trade and welfare. We consider a setting in which an algorithm recommends a product based on its value to the buyer…
In this paper, we employ the Heston stochastic volatility model to describe the stock's volatility and apply the model to derive and analyze the optimal trading strategies for dealers in a security market. We also extend our study to option…
We consider a setting where in a known future time, a certain continuous random variable will be realized. There is a public prediction that gradually converges to its realized value, and an expert that has access to a more accurate…
Traders buy and sell financial instruments in hopes of making profit, and brokers are responsible for the transaction. There are several hypotheses and conspiracy theories arguing that in some situations, brokers want their traders to lose…
We give elementary examples within a framework for studying decisions under uncertainty where probabilities are only roughly known. The framework, in gambling terms, is that the size of a bet is proportional to the gambler's perceived…
In this paper, we propose a mean-field game model for the price formation of a commodity whose production is subjected to random fluctuations. The model generalizes existing deterministic price formation models. Agents seek to minimize…
The dynamics of financial markets are driven by the interactions between participants, as well as the trading mechanisms and regulatory frameworks that govern these interactions. Decision-makers would rather not ignore the impact of other…
Opportunities for stochastic arbitrage in an options market arise when it is possible to construct a portfolio of options which provides a positive option premium and which, when combined with a direct investment in the underlying asset,…
It has become the default in markets such as ad auctions for participants to bid in an auction through automated bidding agents (autobidders) which adjust bids over time to satisfy return-over-spend constraints. Despite the prominence of…
We study a sequential decision-making model where a set of items is repeatedly matched to the same set of agents over multiple rounds. The objective is to determine a sequence of matchings that either maximizes the utility of the least…
This article explores the optimisation of trading strategies in Constant Function Market Makers (CFMMs) and centralised exchanges. We develop a model that accounts for the interaction between these two markets, estimating the conditional…
We consider a specialized form of risk management for betting opportunities with low payout frequency, presented in particular for exotic horse race wagering. An optimization problem is developed which limits losing streaks with high…
We consider the issue of a market maker acting at the same time in the lit and dark pools of an exchange. The exchange wishes to establish a suitable make-take fees policy to attract transactions on its venues. We first solve the stochastic…
It has been assumed that arbitrage profits are not possible in efficient markets, because future prices are not predictable. Here we show that predictability alone is not a sufficient measure of market efficiency. We instead propose to…
Automated Market Makers (AMMs) are emerging as a popular decentralised trading platform. In this work, we determine the optimal dynamic fees in a constant function market maker. We find approximate closed-form solutions to the control…
In several standard models of dynamic programming (gambling houses, MDPs, POMDPs), we prove the existence of a very robust notion of value for the infinitely repeated problem, namely the pathwise uniform value. This solves two open…