Related papers: Illiquid Financial Markets and Monetary Policy
Market makers provide liquidity to other market participants: they propose prices at which they stand ready to buy and sell a wide variety of assets. They face a complex optimization problem with both static and dynamic components. They…
The programmable and composable nature of smart contract protocols has enabled the emergence of novel market structures and asset classes that are architecturally frictional to implement in traditional financial paradigms. This fluidity has…
Financial markets for Liquified Natural Gas (LNG) are an important and rapidly-growing segment of commodities markets. Like other commodities markets, there is an inherent spatial structure to LNG markets, with different price dynamics for…
Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…
We apply the concepts of utility based pricing and hedging of derivatives in stochastic volatility markets and introduce a new class of "reciprocal affine" models for which the indifference price and optimal hedge portfolio for pure…
Using Trades and Quotes data from the Paris stock market, we show that the random walk nature of traded prices results from a very delicate interplay between two opposite tendencies: long-range correlated market orders that lead to…
This paper formulates a model of utility for a continuous time framework that captures the decision-maker's concern with ambiguity about both volatility and drift. Corresponding extensions of some basic results in asset pricing theory are…
We develop a version of the fundamental theorem of asset pricing for discrete-time markets with proportional transaction costs and model uncertainty. A robust notion of no-arbitrage of the second kind is defined and shown to be equivalent…
Market-based mechanisms such as auctions are being studied as an appropriate means for resource allocation in distributed and mulitagent decision problems. When agents value resources in combination rather than in isolation, they must often…
We analyze multiline pricing and capital allocation in equilibrium no-arbitrage markets. Existing theories often assume a perfect complete market, but when pricing is linear, there is no diversification benefit from risk pooling and…
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 prove a version of First Fundamental Theorem of Asset Pricing under transaction costs for discrete-time markets with dividend-paying securities. Specifically, we show that the no-arbitrage condition under the efficient friction…
We consider two risk-averse financial agents who negotiate the price of an illiquid indivisible contingent claim in an incomplete semimartingale market environment. Under the assumption that the agents are exponential utility maximizers…
Motivated by empirical observations on the interplay of trends and reversion, a lattice gas model of financial markets is presented. The shares of an asset are modeled by gas molecules that are distributed across a hidden social network of…
Management of the portfolios containing low liquidity assets is a tedious problem. The buyer proposes the price that can differ greatly from the paper value estimated by the seller, the seller, on the other hand, can not liquidate his…
This paper provides a general framework for modeling financial contagion in a system with obligations in multiple illiquid assets (e.g., currencies). In so doing, we develop a multi-layered financial network that extends the single network…
In this paper we provide a quantitative analysis to the concept of arbitrage, that allows to deal with model uncertainty without imposing the no-arbitrage condition. In markets that admit ``small arbitrage", we can still make sense of the…
This study investigates the prevention of market manipulation using a price-impact model of financial market trading as a linear system. First, I define a trading game between speculators such that they implement a manipulation trading…
We explore stability and fairness considerations in decentralized networked markets with bilateral contracts, building on the trading networks framework [Hatfield et al., 2013]. In our trading network game, we show that a well-defined…
We present a general equilibrium macro-finance model with a positive feedback loop between capital investment and land price. As leverage is relaxed beyond a critical value, through the financial accelerator, a phase transition occurs from…