Related papers: How to design a derivatives market?
We consider an exchange who wishes to set suitable make-take fees to attract liquidity on its platform. Using a principal-agent approach, we are able to describe in quasi-explicit form the optimal contract to propose to a market maker. This…
Following the recent literature on make take fees policies, we consider an exchange wishing to set a suitable contract with several market makers in order to improve trading quality on its platform. To do so, we use a principal-agent…
Exchange markets are a significant type of market economy, in which each agent holds a budget and certain (divisible) resources available for trading. Most research on equilibrium in exchange economies is based on an environment of…
We consider a trading marketplace that is populated by traders with diverse trading strategies and objectives. The marketplace allows the suppliers to list their goods and facilitates matching between buyers and sellers. In return, such a…
We introduce a two-agent problem which is inspired by price asymmetry arising from funding difference. When two parties have different funding rates, the two parties deduce different fair prices for derivative contracts even under the same…
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…
A common assumption in financial engineering is that the market price for any derivative coincides with an objectively defined risk-neutral price - a plausible assumption only if traders collectively possess objective knowledge about the…
Prediction markets are designed to elicit information from multiple agents in order to predict (obtain probabilities for) future events. A good prediction market incentivizes agents to reveal their information truthfully; such incentive…
In a market with transaction costs, the price of a derivative can be expressed in terms of (preconsistent) price systems (after Kusuoka (1995)). In this paper, we consider a market with binomial model for stock price and discuss how to…
We develop a method using parameterized linear equations to define trading mechanisms in market design models. Our method adeptly addresses challenges arising from factors such as complex endowments or coarse priorities, while offering…
We discuss an incentivizing market and model-based approach to design the energy management and control systems which realize high-quality ancillary services in dynamic power grids. Under the electricity liberalization, such incentivizing…
The question of pricing and hedging a given contingent claim has a unique solution in a complete market framework. When some incompleteness is introduced, the problem becomes however more difficult. Several approaches have been adopted in…
The recent crisis and the following flight to simplicity put most derivative businesses around the world under considerable pressure. We argue that the traditional modeling techniques must be extended to include product design. We propose a…
Automated market makers are a popular mechanism used on decentralized exchange, through which users trade assets with each other directly and automatically through a liquidity pool and a fixed pricing function. The liquidity provider…
Classic market design theory is rooted in static models where all participants trade simultaneously. In contrast, modern platform-mediated digital markets are fundamentally dynamic, defined by the asynchronous and stochastic arrival of…
Dealers make money by providing liquidity to clients but face flow uncertainty and thus price risk. They can efficiently skew their prices and wait for clients to mitigate risk (internalization), or trade with other dealers in the open…
Recent progress in the development of efficient computational algorithms to price financial derivatives is summarized. A first algorithm is based on a path integral approach to option pricing, while a second algorithm makes use of a neural…
Travel time derivatives are financial instruments that derive their value from road travel times, serving as an underlying asset that cannot be directly traded. Within the transportation domain, these derivatives are proposed as a more…
Everlasting options, a relatively new class of perpetual financial derivatives, have emerged to tackle the challenges of rolling contracts and liquidity fragmentation in decentralized finance markets. This paper offers an in-depth analysis…
The paper presents two new approaches to modeling the interaction of small and medium pricetaking traders with a stock exchange. In the framework of these approaches, the traders can form and manage their portfolios of financial instruments…